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Why investors are reaching for the astrology of finance
- deleted 4y ago[deleted]
- uptownfunk 4y agoAny link not behind paywall?
- evronm 4y agoJust disable Javascript. It's more of a pay hedge than a pay wall.
- choxi 4y agohttps://archive.ph/2022.09.01-120641/https://www.economist.com/finance-and-economics/2022/09/01/why-investors-are-reaching-for-the-astrology-of-finance https://archive.ph/2022.09.01-120641/https://www.economist.c...
- collegeburner 4y agoI know a few people who have done quite well with technical anaylsis. Personally I found a lot more alpha in ML models but the idea isn't bad. HOWEVER you will not find the good stuff being published to some meme stock wsb retard substack. Because when you share a strategy like this with everyone you remove most of its worth. Like for example there's absolutely significance to "resistance" levels just like certain mkt caps or price targets. Bc people place orders for those prices. Same as how breaking 1b mkt cap usually gets a pop bc it unlocks a lot of institutional capital.
- NovemberWhiskey 4y agoI know a few people who have done quite well with totally random stock picking too. Without correction for selection bias, it doesn't tell you anything. There is no good stuff here; it is no better than augury and the people making serious money in the markets are Not Doing It Like This.
- gammarator 4y ago“ The automatic mind creates causal stories out of dubious raw material. When Kahneman studied the records of managers at one investment firm, over 25 years, he found there was zero link between managers earning an above-market return one year and repeating that kind of performance the next — although, of course, pay was pegged to annual returns and managers with good years were richly rewarded. Unsurprisingly, the firm’s executives refused to believe that variation in performance was random. “I’ve done very well for the firm and no one can take that away from me,” one told Kahneman. “I took it away from you this morning,” Kahneman recalls thinking.” https://www.washingtonpost.com/entertainment/books/thinking-fast-and-slow-by-daniel-kahneman/2011/12/08/gIQAmyh4yO_story.html https://www.washingtonpost.com/entertainment/books/thinking-...
- lottin 4y agoSome people have done quite well betting on horses, but from that we can't infer that it's a good investment strategy.
- Bostonian 4y agoThe article mocks technical analysis by calling it "astrology", but there is much academic research supporting the use of cross-sectional and time series momentum. A simple way to decide whether an asset is an uptrend is to compare its latest price to its N-day moving average. A site that lets you test moving average strategies is Portfolio Visualizer -- a backtest of the 200-day moving average crossover on an S&P 500 index fund is at https://www.portfoliovisualizer.com/test-market-timing-model?s=y&coreSatellite=false&timingModel=5&timePeriod=4&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&periodicAdjustment=0&adjustmentAmount=0&inflationAdjusted=true&adjustmentPercentage=0.0&adjustmentFrequency=4&singleAbsoluteMomentum=false&volatilityTarget=9.0&downsideVolatility=false&outOfMarketStartMonth=5&outOfMarketEndMonth=10&outOfMarketAssetType=1&movingAverageSignal=1&movingAverageType=1&multipleTimingPeriods=false&periodWeighting=2&windowSize=-1&windowSizeInDays=200&movingAverageType2=1&windowSize2=10&windowSizeInDays2=105&excludePreviousMonth=false&normalizeReturns=false&volatilityWindowSize=0&volatilityWindowSizeInDays=0&assetsToHold=1&allocationWeights=1&riskControlType=0&riskWindowSize=10&riskWindowSizeInDays=0&stopLossMode=0&stopLossThreshold=2.0&stopLossAssetType=1&rebalancePeriod=-1&separateSignalAsset=false&tradeExecution=0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&comparedAllocation=0&timingPeriods%5B0%5D=5&timingUnits%5B0%5D=2&timingWeights%5B0%5D=100&timingUnits%5B1%5D=2&timingWeights%5B1%5D=0&timingUnits%5B2%5D=2&timingWeights%5B2%5D=0&timingUnits%5B3%5D=2&timingWeights%5B3%5D=0&timingUnits%5B4%5D=2&timingWeights%5B4%5D=0&volatilityPeriodUnit=1&volatilityPeriodWeight=0&symbol1=VFINX&allocation1_1=100 https://www.portfoliovisualizer.com/test-market-timing-model... . The result is that a trend-following system, compared to buy-and-hold, has had slightly lower returns, 10.57% vs. 11.10%, but substantially lower volatility, 11.48% vs. 15.22%, and thus a higher Sharpe ratio, over the period Jan 1985 - Aug 2022.
- eimrine 4y agoAny other working ways except of moving average? As a beginner trader, for me this seems the only working part of "astrology".
- pfortuny 4y agoAs another commenter said, the moving average has already been arbitraged out. You can now study the moving variance, but it will have also been… Then you can look at the kurtosis of covariances… At some point something will be new. That is astrology.
- boringg 4y agoI enjoy this title. And yes technical stock trading always felt like it was astrology but so is trading/investing in general - there's very little control especially over the macros and specifically about talking about public trading. Private investment is a whole different kettle of fish.
- kelseyfrog 4y agoMore traders should be doing technical analysis. It makes it easier to extract profit from them.
- spaghettiToy 4y agoIs technical limited to the publically available numbers? Or reading a vision statement, watching commercials, etc.... Because that is getting less technical and more feely. With some exception (Tesla), technical analysis has major limitations. I don't really have time to figure out if a CEO has new back pain and started taking opioids. There's a reason index funds are so popular. You hold a belief that growth will continue. You basically need that belief anyway when investing in individual companies.
- kelseyfrog 4y agoTechnical analysis is a pattern and geometric-based form of financial divination typically starting with candlestick charts. It's not that the haruspices of technical analysis couldn't incorporate other instruments, but the vast majority don't. While it would be fun to see a numerologic or arithmancic approach to 10-Ks for example, it might be pulling back the veil a bit too much.
- MichaelZuo 4y agoFinancial divination is a good way to put it.
- Nifty3929 4y ago
- m3kw9 4y agoSorta proves that a lot of alpha is actually just luck
- tenpies 4y agoI have always liked "there are no gurus, only cycles". That luck factor you talk about occurs when the right guru and cycle line up. Then the cycle changes and wipes the floor with the guru.
- sudden_dystopia 4y agoAnalyzing historical trends is astrology? And traditional valuation methods have held up so well? It’s a casino, put your pinky down.
- joshu 4y agothat's not what technical analysis is.
- belfalas 4y agoTrivia: there is a whole discipline of astrology people have used to play the stock market called horary astrology. Curious and entertaining to read about but I would not advise it as a strategy!
- arthurcolle 4y agoYeah there's a crypto astrology TikTok/Gram influencer who really plays up the "smart witch" angle - its a huge joke, can't believe people seriously base options trades on this cognitive junk food
- spaghettiToy 4y agoI don't really need another reason to doubt democracy.... Hahahaha Just keep your head down, the crowd is often wrong.
- alchemyromcom 4y ago>Their methods are many, varied and wackily named. A “death cross” is when a short-term moving average of an asset’s price falls below a long-term moving average. I think the author is a little overly skeptical here. A moving average is by no means voodoo black magic, it's actually very simple. You take the price over the last x periods, for example 50 days, and find an average. Then you do the same with a different amount of periods, say 200 days, and then you compare that to the price. I think it's reasonable and useful to make inferences based on these three pieces of data. Is the price under the two averages? If yes, then it's likely a little low right now and might go up. Is the price way over the average price? If yes, it could go down. That, to me, is a reasonable analysis of data. Taking it a little further, if the shorter period average is going down way faster than the longer period average, does that indicate something? Maybe that the price has been going down faster recently compared to the average of the longer period of time. Is that not a useful observation to make? If the short term average is going down so fast that it crosses the long term average, and the price is way above the two, isn't that a useful bit of information to know(that's a death cross). Perhaps you don't want to bet your entire life savings on this information, but it's also an exaggeration to claim that finding averages has no statistical merit. If you then look into things, you'll find a lot technical indicators are derived from simple statistics and especially averages. Consider the very popular MACD, or Moving Average Convergence Divergence. A lot of people like that one, including myself, and it's made some people at least a little bit of money. For me technical analysis is like the icing on the top of a very tasty fundamental analysis cake. You don't want a cake that's only icing, but if you do get the icing just right, then you can sell your cake for quite a bit more money.
- sidlls 4y agoMore complicated averages do play a role in legitimate analysis of random walk processes, but taking fixed-window averages and comparing them to one another is effectively useless.
- soVeryTired 4y agoI worked as a quant trader at one point. I think there’s something to be said for technical analysis. The simplest thing you can do is chase returns. Maybe you do that by looking at assets that have yielded large returns over the past N days. If you do so using total returns (i.e. price appreciation plus dividends, coupons, or whatever) that will bias you towards high yield bonds and high-risk equities. History says that’s honestly not a bad strategy. If you decide you want to be less prone to buying high-yield assets that usually pay out but that could crumble at a moment’s notice, the next-simplest thing you can do is ask whether an asset has produced a good return relative to its long-term history. There are all sorts of reasons this could happen: maybe it’s a stock in a sector that recently became popular. Or maybe interest rates are falling and it’s a long duration bond. In any case, it’s not obviously a bad idea to buy assets with recent good performance. “Hop on the bandwagon” works ok as an investment thesis IMO. The key is that you operate in as many markets as possible and let diversification do the hard work for you. If you eke out a small edge that works across markets, on average you’ll do ok. That’s my 2c on the systematic technical trading mentality. You don’t need to swallow it wholesale, but I don’t it’s fair to characterise texhnicL traders as a bunch of swivel-eyed loons either.
- baking 4y agohttps://www.theatlantic.com/magazine/archive/1971/06/confessions-of-a-stockbroker/664629/ https://www.theatlantic.com/magazine/archive/1971/06/confess... Evander, the Chartist, in a Downside Market One of my men talks to nobody else in the office except me—and to me only reluctantly. He believes that everyone is out to steal his ideas. He’s Evander Wood, our institutional man, and he locks his desk every night, his key connected to a long chain attached to his vest. Evander is a chartist—or technician, a term he prefers because it sounds more professional. In 1968 he grossed $160,000 in commissions; in 1969, a respectable $90,000. He deals strictly with institutions—mutual funds, insurance companies, trust departments of banks—giving them statistical proof of stock groups that are strong and individual companies in these groups which should be purchased. He has a gimmick, as all successful institutional men must have if their contacts are not purely social. (That is, contacts like your roommate from St. Mark’s who does the buying for Mass. Investors Growth Fund or your fraternity brother from Deke at UCLA who directs Lockheed’s Pension Fund.) People have to be so intimidated by Evander’s charts (he makes a poor personal impression), or so confused by his system, that they buy in self-defense. He has a magic divisor that changes in relation to the volume of the market going up (upside volume) and going down (downside volume), placed in juxtaposition to his own index of glamour stocks plus what the small buyer (odd lotter) is selling short on a given day. Could you follow that? I never could, but he has had fifteen mutual funds who have given him business on the basis of his information—which proves that you can indeed fool most of the people most of the time when it comes to their fascination for money. I’ve always thought Evander would be an ideal star as the tailor who wove beautiful threads out of nothing in “The Emperor’s New Clothes.” When he speaks, he speaks only in charting language, referring to people in the street as having “sloping head and shoulders,” to bald men as having “topped out,” to broad-beamed women as possessing “descending channels” or “falling wedges.” He used to laugh and laugh at his jokes and take orders for 5000, 10,000, 15,000 shares at a clip. Everyone in the office hated him, especially after he took an order. He was a familiar figure in the financial districts, plodding along with his pipe, his professorial air, and his large briefcase filled with charts and magic potions. He’d pick the soft-drink industry for action and Coca-Cola in particular “for a breakout.” Then he’d sell it to the funds on the basis of his number studies. At lunch he’d have a corned beef on rye and a Tab. “What is this junk?” he’d say suddenly. “That’s Tab,” I’d tell him. “Made by Coca-Cola. You recommended it.” Evander hasn’t written an order in two months, and we’ve taken him off his $1000 a month draw. He has the desperate look in his eyes of the man who is interviewing with other firms and can’t get a job. Portfolio managers who gave him business are now explaining why their net asset values are down as much as 40 percent this year, and Evander has added more charts to his briefcase and more keys to his ring. I caught a fleeting glimpse of Samuelson’s Economics in his drawer before he slammed it shut. I see combat fatigue in the lines of his face, and I think he needs Pat O’Brien, not me, for help. Don’t give your money to a chartist, the dying mother said. How To Lie With Statistics was the first book I read in college. "Brutus" was a pseudonym of John D. Spooner
- hankchinaski 4y agoAs I remember listening in to a presentation, technical analysis is like guessing the color of a semaphore in a street crossing just by looking at people standing by. If people are standing by the semaphore is very likely to be red. If people are crossing the street is very likely that there are not vehicles coming by and the semaphore will very likely be green. Same with technical analysis. You look at signals to “infer” the state of the system. I use very likely because these inferences are not a single value but a distribution of values (x% probability of being true). By no means this make it “astrology”
- orsenthil 4y agoWhat is a Semaphore?
- integrate-this 4y agoSociety was told for thousands of years that astrology could predict the future and we believed it. But turns out, it couldn't. Society was told for decades that "technical analysis" couldn't work because any advantage would be arbitraged away. Turns out, that was a bunch of BS and we now have very strong evidence for the basis of "technical analysis", momentum, going all the way back to the advent of financial markets. These two things are not at all analogous.
- wrp 4y agoIs technical analysis always purely based on stock market numeric patterns, without any consideration of contextual factors?
- matheusmoreira 4y agoYeah. It's just statistical algorithms on top of historical market data. The simplest is the moving price average. Then you have bollinger lines, basically price +/- standard deviations. And so on...
- dbs 4y agoTechnical indicators and patterns are great in retrospective. If it is public/published, it does not work at all, or it does not work enough of time to make it worthwhile. PS: former quant