pkfryer said:
what I think is the power of fibonacci, gann and other indicators is that they have large followings. So even though I believe that a lot of technical analysis and various other more mystical techniques are possibly in our imagination we can benefit greatly by observing them.
Self fulfilling prophecies actually create that which people expect will happen. So the indicators work because people believe they will work and change their behaviour appropriately. If a number of people start buying or selling at exactly the same point the supply and demand is going to be effected. How else could certain ratios that were originally applied to the physical world effect a human construct, a crowd of people. What would cause it?
I am more interested in crowd psychology for practical application to trading, but I love number theory and I am fascinated that there are re-occuring patterns to things in the physical world. Has there been any significant scientific studies in fibonacci and the stock market? I'd love to read it.
Im wondering if there is any market theory surrounding PI. I remember reading in the Fermat last theorem book that PI springs up a lot. Can't remember exactly what the example was but I think it goes along the lines of: if you divide the length of a river by the distance from its source to the mouth the result is PI nearly always.
One thing that I found also very interesting. I read about this guy that created a trading system thats entry was randomly produced, i.e random number betwee 1 and 10, 2 and below being a buy, 9 and above being a sell (or something similar). The exit method was based on a bollinger band system exit. The system performed much better and much more consistently than most indicator based systems. Interesting.
In other words, even if something has actually no bearing on the underlying price movements and is essentially a random point in the chart, it will actually perform a lot better than most other things. It makes sense... what better method to use in a random environment... than a random method 🙂
I think there are many things you say here that I agree with, hence the interest in the no indicators thread, price/volume analysis. (Just two more indicators
😆 ). I am a pure mathematician by training, and sspecialised in number thery many years ago.
Indeed, I spent many years applying number theory to markets, only to realise the fallacy of this method. In applying the pure number theory, one is already I suspect undermining the purity of the analysis as it stands, and thus debasing its right to be.
I think IMHO the trick is to find what indicators the rest of the crowd are looking at, and go with them. These vary from market to market, and from time to time within a given market as the make-up of the volume players changes.
There is much analysis omn random walk theory, and most of it is probably mathematically sound, but it won't get you inand out of any market safely unless you are prepared to wear a big potential drawdown, which most self directed traders cannot and indeed should not.
Rather like the universe observed at the macro level displays almost complete randomness (and the more we know about it, the more random, mathematically, it appears), within this randomness we can observe prdictable patterns, such as orbits (planetary, comet and solar sysytem) that have predictive powers. So a market, which is probably somewhat less random to begin with than the universe as at least the numbers are finite, displays what appear to be, at least in the time frame we choose to consider, patterns.
That doesnt tell you how to make money, but it may act as a filter for where (ie which market) you should throw your money
😆
