- How long have you been providing research to clients?
- Why haven’t I heard of Arbor Research or Arbor Quantitative Analytics?
- Who developed this research?
- Where do you get your data from?
- How much data do you have?
- How many markets do you cover?
- What is a zone?
- When are zones considered tested?
- How do you determine if a zone has held?
- Why are there 1st, 2nd and 3rd zones? What do they mean?
- What are support and resistance zone probabilities?
- How do you create your support and resistance zone probabilities?
- What is pattern recognition?
- How should I interpret the ‘Favored Direction’ section in the probability reports?
- How should I interpret the ‘Potential Opportunities’ section in the probability reports?
- How can the trend definition and probabilities of testing support or resistance be different in the probability reports?
- How do you define price trends in your reports?
- How do you define price trends when creating reports and performing more rigorous analysis?
- What is persistence and when is it relevant to me?
- How does your research account for volatility?
- How do you account for news in the markets, such as FOMC meetings?
- How consistent is your method and why is it important?
- I don’t hold positions for more than a few hours, how could this help me?
- I am a long term trader, how would this apply?
- How can I tell where to trade with the reports?
- I use CQG or Bloomberg, how can I get these zones to show up on my charts?
- I don’t like technical research, why should I look at your research?
How long have you been providing research to clients?
Founded in 1988, Arbor Research and Trading, LLC (“Arbor”) has a long history of delivering innovative, technology-based products to many of the largest and most influential financial institutions world wide. As the landscape of global financial markets has changed, Arbor has adhered to its mission, providing clients with timely analysis, objective opinion and first-class execution.
Arbor Quantitative Analytics (“AQA”) is the technical research and development arm of Arbor that has been in existence since 2000. AQA previously concentrated on servicing the internal sales force and institutional fixed income client base.
Arbor Research and Trading, LLC and its affiliates including Arbor Quantitative Analytics and Bianco Research.
The research has been under development for the past twelve years. The group has over 31 years’ of experience and continues to improve the methodologies for measuring price activity and forecasting likely outcomes.
Data integrity is critical to our research. We pull data from various sources including Bloomberg and CQG. Our institutional client base helps to provide and verify data on more illiquid and opaque markets.
We have over 150 different markets in our database going back to inception in many cases.
AQA’s Charting Application provides zones for over 100 different markets. This includes major global interest rates, spreads, currencies, commodities and equities.
Probabilities for daily, weekly and monthly zones are published each day for over 40 markets. AQA’s zone and probability reports offer additional information to help traders gauge the strength and persistence of trends.
AQA continues to broaden our coverage and would be happy to discuss how we might apply our research towards other markets that might interest our clients.
A zone represents a range of prices where the highs (resistance) and lows (support) are expected to form assuming current price momentum continues.
In its most basic form, the holding or breaking of 1st Support or Resistance zones confirms the strength of existing trends. 1st Supports and Resistances need to hold (closing basis) in order to sustain bull and bear trends, respectively. Breaks of 1st Support and Resistance efficiently confirm shifts in momentum. Clients use zones to define momentum, set points of entry, establish targets and gauge risk.
AQA provides zones for Daily, Weekly, Monthly, Quarterly, and Yearly time periods.
Zones are considered tested once prices achieve that level within the specified time period. For example, daily resistance zones are considered tested once the high for that day falls within or above the zone.
Resistance zones are considered to have held when the close for the given time period falls within or below the zone. Support zones have held if the close for the given time period falls within or above the zone. Daily zones are evaluated using daily closes, weekly zones using weekly closes and so on.
Note that the published odds of holding for a zone apply to those instances where the zones were tested. For instance, 1st weekly support may have a 40% chance of being tested, and a 67% chance of holding. This means that among the 40% of instances where 1st weekly support was tested, the close ultimately fell in or above the zone 67% of the time.
If current market conditions (primarily trend and volatility) continue, the inner pair of zones, or 1st support and resistance, are where we would expect the high and low to form for a given period (day / week / etc.). The AQA methodology focuses on the testing and holding of 1st resistance and support zones to evaluate market conditions and identify shifts in momentum as they happen.
If prices trade through 1st resistance or support, this is a sign that market conditions are changing. In these situations, we would initially look to 2nd zones as the next most likely inflection points. These are often used as contingency points to evaluate the risk exposure should prices move through a 1st support or resistance zone.
The 3rd pair of zones provides yet another potential inflection point in case of extreme moves. These are rarely tested in the daily time periods, which is why we do not offer probabilities of testing or holding for 3rd zones. In higher time periods however, these zones are often viewed as potential points of exhaust for extended moves.
Probabilities present the odds of testing and holding at various support and resistance zones across the daily, weekly, and monthly time frames. The probability of testing indicates the percentage of times when similar setups have gone on to achieve given supports and/or resistances. The probabilities of holding indicate how often the zones have contained prices (on a closing basis) when achieved.
The AQA approach compares current market characteristics with corresponding observations from the past. A database covering 150+ markets across 10+ years of trading is used to find similar patterns and assess their outcomes. The query essentially answers the question “under similar market conditions, what have prices done over the next day, week, or month?”
Each trading day, the results of these queries are presented as probabilities of testing and holding at current daily, weekly, and monthly support and resistance zones.
AQA looks to match current price and momentum characteristics to similar setups in the past.
AQA uses four forms of inputs when creating the probabilities in order to match the current market setup to setups in the past: Trend, Time, Current Zone Reactions, and Past Zone Reactions
- Trend is identified using Daily, Weekly, and Monthly price bars in order to best determine the magnitude of short, medium, and long term momentum.
- Time is simply the day of the week and month.
- Current Zone Reactions identify whether a given market has tested, broken, or is currently trading within current weekly and monthly zones.
- Past Zone Reactions look for the same thing as Current Zone Reactions, except using previous daily, weekly, and monthly zones. This assists in establishing whether the market is adhering to expectations or in the process of accelerating/reversing course.
How should I interpret the ‘Favored Direction’ section in the probability reports?
The ‘Favored Direction’ column indicates whether or not probabilities favor a Bullish, Bearish, or Neutral movement in prices going forward for the specified time period.
How should I interpret the ‘Potential Opportunities’ section in the probability reports?
The ‘Potential Opportunities’ column identifies high probability targets following the favored direction, as well as high probability barriers both to the upside and downside.
- High probability targets favor buying/selling into specific resistance/support zones. These opportunities should bolster momentum strategies and/or assist in determining the risk of an adverse move against your current trading bias.
- High probability barriers favor prices making a pause and/or inflection point at specific resistance/support zones. These opportunities should assist buyers and sellers in determining suitable entry/exit levels and determining hard lines in the sand for risk management practices.
How can the trend definition and probabilities of testing support or resistance be different in the probability reports?
The trend definitions are descriptive of the past, while the probabilities are essentially a forecast. Most traders find these situations to be very valuable when the probabilities favor a deviation from current trend.
How do you define price trends in your reports?
The probability reports indicate under the ‘Trend’ column whether or not prices are trending (h = Bullish and i = Bearish) or not (g = Neutral). The definitions listed in our reports have been simplified from those used in our analysis in order to aid in clarity. These definitions are meant to be descriptive and not necessarily predictive.
Each time period (daily, weekly, and monthly) is defined as one of sixteen uniquely defined trend definitions using the past three price bars. The degree to which a market is trending and the location of the past bars’ highs, lows, and closes determine the specific trend definition. For example, a bullish trend can be intact, slowing, or aborting. The definitions are integral to the process of generating support/resistance zone probabilities (forecasts).
Persistence is simply the length of time a specific zone has held in a given market. This assists in determining whether a daily, weekly, or monthly trend has been in place for a protracted period of time. We believe that zones that have held for more than 5 price bars are exceeding expectations and may indicate whether a market is overbought or oversold. Breaks of zones that have held for prolonged periods in time indicate shifts in momentum and changing behavior in the market.
Support and Resistance zones are constructed using previous price action. This process allows our levels to adjust automatically for increasing or decreasing volatility in the form of zone size and location.
AQA zones and probabilities are created using a consistent algorithm which uses only past price behavior for their creation. This process is not modified directly to account for economic releases, FOMC meetings, or any other market moving news releases. However, many expectations get priced into the market thus impacting volatility and momentum which our process does account for.
Consistency is critical in the AQA methodology and is a major distinguishing factor when compared to other forms of technical analysis. While many forms of technical analysis are subject to individual interpretation or bias, the AQA approach to creating zones is designed to minimize human bias. The same algorithm is applied to all markets and asset classes. The process of generating zones is also consistently applied to all time periods.
This consistency ensures that the zoning process would yield the same results from defined market conditions today as it would twelve months ago. This provides the foundation of our pattern recognition approach which queries our database of past price behavior to look for similar situations. By identifying these past instances with similar conditions and looking at what happened next, we can provide traders with a range of expectations in the form of probabilities.
AQA is a measurement tool providing logical locations for highs and lows to form for the day based on the continuation of past momentum.
Using this concept to place trades allows one to determine whether they are buying into resistance or inversely selling into supports, thus providing limited reward for the risk taken.
- Zones with a high probability of holding present an opportunity to play for a bounce or reaction.
- Zones with a high probability of being tested allow one to place a trade, using the relevant support or resistance zones as targets and a location to exit a position.
AQA provides this information on an intra-day and end-of-day basis to better serve our clients in a timely fashion.
One of the strengths of the AQA methodology is consistency of approach. Breaks and reactions to zones are viewed in the same way regardless of your time horizon. See previous question.
In part, the answer depends on your time horizon and risk tolerances. AQA’s zones are broadly used to quickly discern the context of the market and to identify the strength and persistence of both short and longer term trends.
Many clients use zones as entry and exit points when looking to jump aboard or fade an established trend. Overlapping zones often provide especially attractive targets or entry points.
Shorter term traders often use distance to zones to gauge risk versus reward when evaluating potential or existing positions.
Longer term traders take advantage of AQA’s multi-time period approach to evaluate the significance of short term movements within longer term trends.
We would be happy to work with you to allow you to use our research as a direct overlay to your current technical indicators. Please contact AQA for any further information.
The end product of our research is designed to be very applicable to non-technical traders. The analysis takes complex methods for measuring market momentum and translates this into simple to understand price levels and forecasts. The research simply reports the facts with little to no human bias. Just like fundamental research analysts review historic corporate earnings for growth projections, the approach reviews past similar price trends to make educated forecasts of price movements.