Financial Astrology - Real or Snake Oil?

What is Financial Astrology?

Financial astrology is the practice of using the positions of the planets and stars to make predictions about financial markets. It is also sometimes known as "astro-trading" or "planetary trading." Proponents of financial astrology believe that the movements of the celestial bodies can be used to forecast changes in the stock market, commodity prices, and currency exchange rates. The financial astrology based traders believe that the alignment of certain planets and stars can indicate whether a market is due for a bull run or a bear market.

What is the logic behind Financial Astrology?

The proponents of financial astrology argue that trading is largely driven by human psychology, and because 60% of the human body is water, the position of the celestial bodies have the same influence on the human body as they have on an ocean, causing tides. As per them, this influence is even more on the brain and psychology because the human brain is 75% water.

Lunar cycles have been used for centuries to help predict everything from the weather to the best time to plant crops. In recent years, however, traders have begun to pay closer attention to the moon's phases to gain an edge in the market. The theory is that lunar cycles can influence human behavior and that this behavior can, in turn, impact the markets. For example, it is believed that the full moon causes people to act more impulsively, leading to increased buying activity. Conversely, the new moon is associated with introspection and reflection, which can cause people to be more cautious with their money. By paying attention to lunar cycles, traders can gain a better understanding of how investors are likely to behave. This information can then be used to make more informed trading decisions.

Any real results of trading with Financial Astrology?

In July 2010, the Royal Bank of Scotland published a report on the correlations between the Moon’s phases and the behavior of financial markets (“Sheer Lunacy Staring at the Heavens). The study showed a remarkable increase in profits in a lunar-based buy-sell strategy compared to a regular buy-hold strategy.

Here is an excerpt from the Bank of Scotland report: “If an investor had invested PStg 1000 in FTSE in 1984, by now he would have approx. PStg 5,130 by holding the index, which represents index performance, whereas trading FTSE according to moon phases would make a big difference. First, consider buying FTSE on the new moon and selling on the full moon, this would result in PStg12, 116 overall figure for the same period. It means more than double the profits.” It is noteworthy that the strategy would have been even more profitable for the DAX and the HSI. The result for the S&P 500 data is also higher, but that is because the strategy was applied since 1928.

So, Is Financial Astrology Real?

There are a variety of techniques that fall under the umbrella of financial astrology. Some practitioners use horoscopes to make predictions, while others analyze planetary cycles or alignments and use mathematical correlations. There is no one-size-fits-all approach; each individual practitioner has their own methodologies and techniques.

Critics of financial astrology dismiss it as nothing more than superstitious nonsense. They point out that there is no valid scientific evidence to support the claim that the planets and stars have any influence on human affairs. They also argue that financial astrology is often used to retroactively explain market movements after the fact, which means it is not actually useful for making predictions.

But it is clear that there are many bad elements who claim to be "financial astrologers" whose goal is to dupe investors into making random investments claiming them to be horoscopic predictions.

Should one really care about a topic like Financial Astrology? 

Jim Simons, the billionaire hedge fund manager and founder of Renaissance Technologies (RenTec), is known for his quantitative and systematic approach to trading. In an interview, he discussed the importance of correlations in diverse datasets.

Simons said that when he looks at a dataset, he is looking for patterns and relationships that can be exploited for profit. He noted that these relationships are often hidden in plain sight and can be found by looking at the data in a different way. Simons also said that it is important to look at multiple datasets when searching for profitable relationships.

Interestingly RenTec never hired any financial or trading domain experts. Rather they hired computer scientists, mathematicians, statisticians, physicists, astronomers and such. They built advanced computer models that have detected patterns and anomalies from a huge amount of diverse datasets. “There are patterns in the market,” Simons told a colleague. “I know we can find them.”

The bottomline is that when it comes to a stochastic domain like trading driven by computer algorithms and human psychology, it is important to have an open mind to all seemingly strange ideas as they could potentially have hidden alpha in them. The big advantage of systematic trading is that it provides a definite approach to forming hypotheses, create rules, and backtest them to identify their validity.

There is no telling whether financial astrology is real or snake oil. There is no evidence to prove or disprove it. But it can definitely be considered as an idea that can be systematically tested out by individuals to see if there are any hidden edge there that makes logical sense and fits one's trading style.

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