[HN Gopher] Why investors are reaching for the astrology of finance ___________________________________________________________________ Why investors are reaching for the astrology of finance Author : plonk Score : 29 points Date : 2022-09-09 19:50 UTC (3 hours ago) (HTM) web link (www.economist.com) (TXT) w3m dump (www.economist.com) | belfalas wrote: | Trivia: 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 wrote: | Yeah 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 wrote: | I don't really need another reason to doubt democracy.... | Hahahaha | | Just keep your head down, the crowd is often wrong. | m3kw9 wrote: | Sorta proves that a lot of alpha is actually just luck | tenpies wrote: | I 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. | uptownfunk wrote: | Any link not behind paywall? | choxi wrote: | https://archive.ph/2022.09.01-120641/https://www.economist.c... | evronm wrote: | Just disable Javascript. It's more of a pay hedge than a pay | wall. | orsenthil wrote: | Any easy way by rewriting url? | sudden_dystopia wrote: | Analyzing historical trends is astrology? And traditional | valuation methods have held up so well? It's a casino, put your | pinky down. | joshu wrote: | that's not what technical analysis is. | alchemyromcom wrote: | >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 wrote: | More 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. | collegeburner wrote: | I 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 wrote: | I 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 wrote: | " 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-. | .. | lottin wrote: | Some people have done quite well betting on horses, but from | that we can't infer that it's a good investment strategy. | boringg wrote: | I 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 wrote: | More traders should be doing technical analysis. It makes it | easier to extract profit from them. | spaghettiToy wrote: | Is 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. | Bostonian wrote: | The 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... . | 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. | NovemberWhiskey wrote: | Swap out your S&P 500 fund for a random large cap fund (say | VLCAX) and, whoops, worse CAGR and worse Sharpe ratio over the | same period for your strategy. | | You can prove you would've made money by backtesting anything. | [deleted] | klipt wrote: | But there are tons of trading firms using very sophisticated | mathematical modelling. Surely a signal as simple as this is | already widely used and therefore, the Alpha has been largely | arbitraged out already? | Bostonian wrote: | The high frequency trading firms are interested in strategies | with Sharpe ratio of 3 and above, not the 0.10 incremental | Sharpe ratio for the strategy I linked to. | endymi0n wrote: | This. If there would have been any Alpha to gain by dead | simple, well known pattern recognition, it would have been | exploited very long ago already. | | By now Technical Analysis is all about reading meaning into | white noise (that's overlaying fundamentals and a general | light upwards trend). | nightski wrote: | Well there is historically quite solid Alpha to be gained | from the dead simple strategy of buy and hold. That's just | another dead simple strategy after all, yet plenty of | people recommend it. | plonk wrote: | Because the long-term trend is always upwards. Trying to | take advantage of volatility in the short term is | completely different, it's a zero-sum game. | Bostonian wrote: | That's a good strategy, but it's not alpha, since alpha | is defined as outperformance relative to a passive | strategy. | [deleted] | lottin wrote: | Buying and holding the market gets you the market return, | which by definition has zero alpha. | nightski wrote: | Well the voo has consistently outperformed vtsax when | bought and held so I feel my point stands. A strategy is | a strategy. You have to choose one when you invest no | matter how simple or complex. | eimrine wrote: | Any other working ways except of moving average? As a beginner | trader, for me this seems the only working part of "astrology". | pfortuny wrote: | As 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. | [deleted] ___________________________________________________________________ (page generated 2022-09-09 23:00 UTC)