The last two message we sent you on this list were solicitations; one for Profit, the other for Dakota.  I figured many of you would hit the unsubscribe links in a flurry when we did that, but much to my surprise less than 10 did, out of literally thousands, and a few of those people immediately re-subscribed.  I was shocked.  We take that as either a big compliment or more likely the SPAM filters ate the mailings and only 10 people got it [wink].

Well, rather than soliciting, we figured that providing something useful, or at least interesting, might be more to your liking.  Also, BioComp's customer base is fairly well split between commercial/industrial and financial, we figured that it was better to split our newsletters too.  If you aren't interested in financial "stuff", by all means feel free to click the unsubscribe link at the top or bottom of this message.

BioComp Dakota
By now, you are likely aware that we have a new financial markets product, BioComp Dakota.  Why?  Because Dakota is based on a completely different principle, different technologies, than BioComp Profit.  This means that they create different "views" of market conditions and they offer different abilities.  A comparative chart might help ...

Generally, Profit is predictive and so far, Dakota is reactive, but nothing prevents Dakota from using predictive bots, it's just that we haven't gotten there yet.

What is this Swarm Stuff?
A swarm is a collection of trading "bots" or "agents" that seek equity by varying their parameters.  Dakota takes a user-selected bot type, clones it into a swarm, tells them to initialize their trading systems' adaptable parameters, then Dakota feeds them data, one bar at a time.  Then each bot calculates its signal and Dakota combines them into a "swarm-level" signal.  Then each bot is told its equity performance and to change its trading system parameters.  The bot can change its parameters by independently climbing the equity performance gradient or by cooperating with other bots (comparing parameter values vs. equity of other bots, then moving towards higher equity parameters) .  Either way, the bots seek parameters that make more money under current market conditions, such as equity performance over the last 50 bars.

What is a Bot?
A bot is a piece of software containing a trading system with changeable parameters.  For example, a bot could be a moving average cross-over system with two moving averages who's periods adapt with market conditions, or it could be a swing trader, or an RSI inspector, or a Bollinger Band system, etc.

Does This Bot-Swarm Stuff Work?
It is very easy to test the value of the Swarm concept within Dakota.  You just set the adaptable parameters to fixed values and run Dakota and you will get the "normal" result.  Then allow Dakota to adapt the parameters within a range and note the result.  Based on the situation at hand, performance gains vary.  In some cases, it's small, in others it is significant.  Watch for the March 2006 Stocks & Commodities Traders' Tips... you will see an example of an 11-fold improvement on a Z-Score trading bot when trading the Russell.

Why Does This Swarm Stuff Work?
First, the markets are always changing, thus your trading systems should too.  Second, swarming gives you parallel averaging which induces NO LAG.  A moving average gives time-axis averaging, but there is an associated lag (e.g., 1/2 the period for simple moving averages).  In a swarm, however, we also have multiple trading systems being averaged, each with slightly different parameters.  This multi-bot parallelism gives a lag-less averaging effect and gives a more robust view of the equity surface you are operating upon.

New: ScriptBots: Write Your Own Bots in Dakota
Dakota now supports the ability to write your own bots, using a very well known and broadly used language, Visual Basic.  An example of ScriptBot code is in the next topic below.  ScriptBots enable you to bring the equity advantage of Dakota's adaptive systems to your favorite trading system, by enabling you to "code-up" bots that implement your trading systems and then adapt key parameters.  You can then see and use the advantages of Dakota.  Dakota comes with a handful of beginner and intermediate ScriptBot tutorials in the help system to get you going.  If you are a person who programs or writes trading systems in other software, I think you will find this fairly easy.

Flattening the Learning Curve: Dakota Users Helping Each Other
Dakota is much easier than Profit and has an optional feature which enables you to share (give and get) summary performance results on the swarms other users have built, by ticker and bot.  If you "opt-in" (participate) this information is sent by Dakota to our servers, digested and we publish back a "Knowledge Base" to Dakota.  There is a Knowledge Base window in Dakota that enables you to browse and search other's results.  This enables Dakota users to share both their successes and failures and you can filter out the failures and draw upon the successes to your advantage.  The Knowledge Base currently contains 4,200 different swarm results on 575 tickers.  That's a lot of good information to get you going.

Dakota Pricing
We did something novel when we set the pricing for Dakota... we asked the users what it was worth.  During beta-testing, the users concluded, with some expectations of future enhancements, that Dakota should be priced at about US$495.  They also said that price increases should be small and in direct proportion to the value added.  Since that time we've added numerous features so we upped the price about 5% to $525.  Just now we added ScriptBots, the ability to write your own bot trading systems, so it is likely Dakota's price will rise again soon, likely on or before January 15th.

We have two levels of Dakota pricing:

• Standard                  $525
  Get version 1, pay for upgrades to versions 2, 3, etc. as you go, if you choose.
   
• Product Sponsor      $1,255
  Receive all Dakota product updates for the life of the product
  Receive all future BioComp-authored bots at no charge

Most Profit users recognize that the Sponsor level is a good deal.  If you are interested in getting involved with Dakota, you can order on-line here: http://www.biocompsystems.com/store/financial/index.htm.  You can read more on-line about Dakota here: http://www.biocompsystems.com/products/Dakota/index.htm

Back to top

Intraday Trading
I've concluded, in a semi-mathematical sense, that you must be a pessimist to trade intraday.  In doing testing of Dakota R/T running intraday, I tried a lot of end-of-day type bots and they didn't fair very well.  I instead, wrote a "ScriptBot" in Dakota that was a pessimist.  That is to say, if the security's price is rising, SELL or go SHORT.  Also, the reverse... if the security's price is falling, BUY!

The code goes like this...  First I compute the advances and declines over a horizon from the current bar (PriceCtr) to some number of periods ago (PriceCtr-ParameterValue(1)), where ParameterValue(1) is an adaptive parameter...

Then I take the ratio of advances to the sum of both, which gives me the advance fraction...

If the advance fraction is less than a third (market is falling), the I go LONG.  The opposite is true: if things are too good (advances beat declines), I go SHORT (signal of -1).

Using the Wave Oscillator in BioComp Profit
The Wave Oscillator is an "indicator add-in" for BioComp Profit, authored by James Slack-Smith, a Profit user in Australia.  We offer it for sale for $199.  It is a very capable indicator and the way I'm using it presently, it's raking in money (hypothetically) nicely over the last 6 months of "out-of-sample" data and it has been a fairly consistent money maker over the last few years.  The way I use it is to create a variety of periods and changes in those, as inputs to Profit's modeling, like this:

That means the 8 period Wave Oscillator (and the change thereof) and the 13 period (and the change thereof).  Using these as inputs alone to Profit's models yields some pretty solid results, like making a hypothetical out-of-sample $136,750 per S&P Futures contract over the last 2 years (the system was created in November 2001 and continues to make money to this day).  If you are a Profit user, you may wish to make the Wave Oscillator a brick in the foundation of your systems.

Profit users can order the WaveOscillator in our on-line store.  It's also available on our site for WealthLab.

Closure
If you find this newsletter interesting, please stay subscribed.  If you think others might like getting it, forward this email to them or post a link to our website in your favorite trading discussion group.  That helps us grow.  We'd appreciate it.  If you have suggestions, please email me at cmcook@biocompsystems.com.

These documents are provided for informational purposes only. The information contained in this document represents the current view of BioComp Systems on the material discussed as of the date of publication.  Materials written should not be interpreted to be a commitment on the part of BioComp and BioComp cannot guarantee the accuracy of any information presented after the date of publication.   INFORMATION PROVIDED IN THIS DOCUMENT IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND FREEDOM FROM INFRINGEMENT.

The user assumes the entire risk as to the accuracy and the use of this document. This document may be copied and distributed subject to the following conditions: 1) The entire document must be copied without modification; 2) All copies must contain BioComp's copyright notice and any other notices provided therein; and 3) This document may not be distributed for profit.  All trademarks acknowledged.  (C) Copyright BioComp Systems, Inc. 2006.