As you may note, a new series of bars have appeared on the chart: behind every future bar, there is a light grey vertical patch. Now I tell you where these items come from.
You know that the model is composed of many different widespread markets and I’ve always been eager to expand the number of the series. At the moment the daily forecast counts 52 inputs, having some series to be revised. By the way, the weekly inputs count up to 92 and I’m quite proud of it. 😉
Now that is demonstrated that more is more (more inputs, better output), I got curious about the minimum number of series to produce a meaningful output. After a while, it sorted out that a well-chosen very small set of markets may produce a prediction. I went down to ten components, then eight. Then it seemed hard to reduce the base more. Try and try, I came to the Magnificent Five:
- USD Index
- Natural Gas
- OIL WTI
- TNX – CBOE Interest Rate 10 Year
This set cannot be reduced without compromising the forecasting ability. This means that these markets and their correlations are the backbone of the financial markets, where the big money floats. (We may not be much surprised: forex, energy and rates, these elements probably represent the core of the contemporary financial trades.)
Now, the new bars represent the usual forecast bars, just calculated based on this smallest set of data. The result seems to imply either larger volatility and/or a more fuzzy signal. I would like to keep it on the chart to see how it evolves.