[HN Gopher] Why investors are reaching for the astrology of finance
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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]
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