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Posts Tagged ‘prediction’

Good Looking Waitress Indicator and 49 Other Indicators to Save Your Portfolio

August 13th, 2011

Good looking waitresses could be bad for your assets. (Creative Commons.)

Can the number of good looking waitresses in a restaurant tell you something about the state of the economy?

Could Big Mac sales help you trade currencies?

They just might. You can check out The WSJ Guide to 50 Indicators by Simon Constable and Robert E. Wright for these–and a lot more financial forecasting devices.

Not all the indicators are as fun to research as waitresses and Big Macs. In a serious, but highly readable style, the authors introduce you to a wide-range of the most important portents of coming economic conditions.

The book does a good job of introducing a range of indicators–from macro-economic to micro-economic and from established to esoteric. There is the well-known Libor indicator, but there’s also, for instance, the aforementioned “good looking waitress”–or Vixen–indicator. Here’s how the latter works: Count the number of good looking waitresses–the more there are the worse the economy is.

Although, the authors also tell you that’s a risky trade and, depending on your marital status, a risky practice.

Read more…

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Probability is On Your Side with QuantDNA

August 10th, 2010

The Rolling Stones–via Irma Thomas–just needed time on their side. But for traders, you need time… and probability.

That’s where QuantDNA comes in. QuantDNA offers the probability of price movements for assets based on a proprietary formula.

QuantDNA is not a new site; they’ve actually been at the financial biz for a while and are associated with some of Wall Street’s big names. I was impressed with the first version. However, they’ve worked on some upgrades and updates to make it one of the most impressive financial tools out there today.

This is actually QuantDNA 2.0.

Read more…

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Fooled by Complexity: A Black and White Swan Theory

April 12th, 2010

Complexity by nerovivo @ Flickr

We’ve been having an interesting conversation about randomness and how it relates to investing and trading.

George talked about it in his book review of  Nassim Taleb’s Fooled by Randomness and our friend Nick wrote about it in this post at Becoming Capitalist. Like all great conversations, it made me think. The idea all boils down to primarily one question: is the market propelled by either determinacy or randomness?

And it leads to an even more important question: can we predict the market?

As far as whether the market is deterministic or random, I arrived at this conclusion: yes. It’s a “both-and,” not an “either-or” situation. The market is based on both determinism and randomness–at the same time. How can that be? Aren’t they mutually exclusive?

Read more…

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The Mystery of Investing’s Golden Ratio

October 23rd, 2009
thebadastronomer@Flickr

thebadastronomer@Flickr

So far this week…

We’ve hunted for Investing’s Holy Grail.

We were amazed by the Eighth Wonder of the World: Compound Interest.

And we discovered the Secret Number of Finance: 72.

Now in our quest to uncover the secrets and mysteries of investing, we’ll reveal investing’s version of the Golden Ratio.

The Golden Ratio, well known in the fields of science and math, indicates that there’s a symmetry that underlies the universe. In art, it can be seen in the placement of points of interest in art works. Scientists see the Golden Ratio in things as small as the Nautilus Shell, to the immensity of a spiral galaxy.

The Fibonacci sequence is investing’s golden ratio.

The Fibonacci sequence, named after Leonardo of Pisa, who was known as Fibonacci, starts with 0 and 1, and the remaining number is the sum of the previous two. 1+2=3, 2+3=5, 3+5=8, 5+8=13… and so on.

What does this have to do with investing?

Read more…

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Can Fibonacci Numbers Forecast Your Financial Future

August 31st, 2009

fibonacci

It’s taken me a few years to realize that Fibonacci isn’t some type of pasta dish.

According to Wikipedia:

“In the Fibonacci sequence of numbers, each number is the sum of the previous two numbers, starting with 0 and 1. Thus the sequence begins 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 etc.”

The Fibonacci sequence was also the basis of many Renaissance artworks where it was better known as the golden ratio.

A lot of investors believe that Fibonacci calculations can give you insights into stock market movements. Proponents say that patterns underlie everything in the universe–from the shape of shells to the position of your nose… even the highs and lows of the stock market.

I guess the important thing is: what do Fibonacci numbers say about the near term future?

Read more…

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Lie: You Can Arrive At Financial Freedom Using A Rear View Mirror

April 5th, 2009

They say that history doesn’t repeat itself; but it does rhyme.

Financial wizards like to parade out statistics from the past and make predictions based on their analysis of this rear-view mirror information.

So far, I’ve heard our current economic trouble compared to:

  • The tech bubble burst of 1999-2000
  • The bear market of the 1970s
  • The Great Depression

… And just about every other economic downturn, from the South Sea bubble to the collapse of tulip bulb prices in Holland, in between.

By cherry-picking bits and pieces of data from those eras, they believe they can convince you that since they understand the patterns of the past, they can see the future. But, that logic is faulty.

While this data may “rhyme” with current conditions, it does not repeat exactly. Take the current conditions: Americans have far more options of saving money, investing money, and creating money than the people in the Depression did. A person today could create a business in seconds for pennies, just by connecting to the internet.

How will this play out?

Read more…

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Marching Mentality, Market Mentality

February 11th, 2009

Marching Markets

The market sometimes resembles a march with no real destination.

You beat a few marketing drums and get people to march along with you. As long as you keep the beat, the people will follow you, until either you lead them over a cliff, or a new drummer comes along.

There is new research to suggest that group activities–like dancing and group marching–do increase group loyalty.

As detailed in New Scientist, research Scott Wiltermuth, of Stanford University, made a group of people engage in synchronized activities: marching, chanting, singing, etc. And a group participated in non-synchronized activities. Later, when they were asked to decide whether to participate with the group or strive for their own gain, the non-synchronized group acted less loyally.

It isn’t a stretch to see this same behavior in real life: the inauguration was full of marching bands and communal sing-alongs. Businesses have company meetings and chants.

I wonder: could we hear these communal chants online. Like on Twitter?

The article also mentions that images and propaganda can have a similar effect.

Charles Seger at Indiana University at Bloomington. His team primed students with pictures of their university – college sweatshirts or the buildings themselves – then asked how highly they scored on different emotions, such as pride or happiness. The primed students gave a strikingly similar emotional profile, in contrast with non-primed students.

This research leads me to wonder what cues produce what effects in the markets: whether its buying iPods or buying into a stock or other asset. Could we either watch these cues as they are produced, or could we recognize when primed people are heading an asset higher or lower?

The beat of marching consumers may be just as prevalent, albeit more subtle, when it comes to understanding the rhythm of market movements.

Business Strategy, Investing, Online Investing AI , , , , ,

Change or Chance: Political Prediction Markets Fare Well

January 21st, 2009

Change or Chance

According to a Northwestern University study, the ability to “buy” contracts on candidates Barack Obama and John McCain led to the correct prediction that Obama would win the presidency.

Here it is:

Political prediction markets — in which participants buy and sell “contracts” based on who they think will win an election — accurately predicted Barack Obama’s 2008 victory. Now Northwestern University researchers have determined that these markets behave similar to financial markets.

However, a problem arises when strong partisanship arises. In the 2000 election, for instance, there was such strong partisan rancor that flawed the prediction model, said Daniel Diermeier, the IBM Distinguished Professor of Regulation and Competitive Practice at the Kellogg School of Management.

“I was happy that we could find an account for this abnormality, given that it made sense in the market,” Diermeier says. “You are trading in a market where you may have a very vested interest in the outcome, which is unlike financial markets, where traders probably don’t have an emotional attachment to the price of gold. In political prediction markets, there can be room for wishful thinking.”

But could this behavior point out a bias in the financial market. A trader may not have an emotional attachment to gold, but may have a dislike of Walmart, let’s say. Or, a trader may not like his or her current financial state, causing the trader to bet negatively. Likewise, a confident trader may bet into a bubble.

Our feeling is that emotions and bias should be understood as factors in price movements, but that an unbiased investment system, if properly trained, could better trade these choppy markets without getting caught up in the wrong positions that are based on the two main biases of investors: fear and greed.

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When You See The Black Swan, Ride It

November 13th, 2008

Black Swan

If you’re not sure what the black swan is, check out the book by Nassim Nicholas Taleb.

Essentially (and I’m vastly over-simplifying), Taleb’s point is that your brain is fooled by randomness and that you must be able to recognize the large-scale events that can cause massive and chaotic change in the market.

Taleb refers to these events as “black swans,” based on the notion that everyone believed that only black swans existed, when, lo and behold a species of black swans was discovered it.

To simplify this even more: S**t happens.

The question for me, since I’m interested in how technology can predict asset movements, is: how can we predict a black swan.

I don’t think you need to. The problem isn’t that there is an agnosticism about black swans; the problem is when investors cling to white swans and aren’t nimble enough to jump on the long neck of the black swan.

I believe that technology is suitable adapted–or could be adapted–to not only recognize a black swan moment, but also move assets and change positions into its flight path.

 

Accelerating Technology, Business Strategy, Great Books, Investing, Money, Online Investing AI , , , ,

Prediction: The Future Will Be Different

August 1st, 2008

Go back and look at how some of the television shows and movies portray the future. Very few of them got it exactly right.

The Back to the Future series came close at times, but the director of that movie had fax machines in every room, not laptops and other internet-enabled devices. I’m still waiting for my moveable sky-walkways and suitcase cars, ala the Jetsons.

And, except for M.C. Hammer in the 90′s and a few disco holdouts, gold- and silver-lame jumpsuits never made quite the fashion splash that sci-fi movies predicted.

Online Investing AI

So, it’s hard to predict how the future will be, even though books like the Singularity is Near, spell out some reality-bending notions of how the world and mankind will change. You don’t need to know the specifics, though. All you need to know is that things will change and set yourself in the flow of how to be successful.

That’s what we’re doing with our investment systems. Do we know exactly what the price of HP will be in two years? No. We don’t need to know. What we can make investment choices based on the flow of the future and the general direction of patterns.

If you would like to check out our progress, just visit Online Investing AI.

 

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