Junk Science; Junk Evaluation! | Dancing with the Pattern


I do not assume I’ve offended anybody in fairly some time and really feel I am not doing my job if I do not attempt to periodically; so right here goes!

Usually a easy mathematical sequence of numbers can generally get misinterpreted (promoted) to be one thing magical. My private favourite sequence is 6, 28, 496, 2520, 8128, and 24601. I am going to clarify them on the finish of this text. Personally, I see no worth within the precise numbers that make up the Fibonacci sequence; a sequence developed by an Italian mathematician (Fibonacci) within the thirteenth century to assist perceive the propagation of rabbits. First, I have to say that I do worth the ratio of the numbers which can be expanded in a Fibonacci-like sequence (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, …). That ratio is 0.618 (and its reciprocal is 1.618), typically known as the golden ratio due to its large incidence in nature; nearly all the time with a jaundiced eye. Here’s a truth: the precise numbers within the

Fibonacci sequence have little to do with the ratio. Any two numbers expanded in the identical method will produce the identical ‘golden’ ratio. Here’s a take a look at: Strive it with 2 and 19.  Add them collectively, after which add the entire to the earlier quantity similar to within the Fibonacci sequence (2+19=21, 19+21=40, 21+40=61, and many others.). Broaden this till you get to four-digit numbers in order that the accuracy shall be acceptable (2, 19, 21, 40, 61, 101, 162, 263, 425, 688, 1113, 1801, 2914, 4716, …).  The final two numbers on this sequence are the 2 numbers that I’ll use for this instance: 2914 and 4716. Now divide the primary quantity by the second quantity and you’ll get 0.618. That is precisely the identical as with the worth obtained utilizing the Fibonacci sequence of numbers. So why did I choose 2 and 19 for this instance? Trace: the second letter within the alphabet is B. What’s the nineteenth letter? S. BS! And that’s what numerology is all about. Desk A exhibits the sequence utilizing varied beginning numbers together with my particular choice of 2 and 19. The final column begins with a unfavorable quantity.

Desk A

I can discover no supply that explains why the sequence of Fibonacci numbers begins at zero. If I have been tasked with mathematically figuring out the propagation of rabbits, I feel I’d at the least have to start the sequence at 2. The actual fact of the matter is that the sequence can start wherever, even unfavorable numbers, so long as the enlargement follows the right components. It’s the ratio that’s necessary, not the precise numbers within the sequence. So, while you hear somebody say they will use a 34-day shifting common as a result of 34 is a Fibonacci quantity, you may instantly start to doubt the remainder of their evaluation. Simply so you already know; the Fibonacci enlargement of 1 plus the sq. root of 5 divided by 2 will work with any two numbers, even unfavorable numbers. Sorry, no magic right here, simply numerology. So far as Elliott Wave idea goes, there are sometimes so many issues and situations launched into utilizing this sort of evaluation, that it’s incapable of being proved flawed. Typically I feel it will get adjusted extra typically than earnings estimates. Nevertheless, it’s all the time convincing to align the workings of the market with what seems to be pure arithmetic. Within the sequence of numbers launched originally of this part, 6, 28, 496, and 8128, are often called good numbers; this implies the sum of their divisors (aside from the quantity itself) can also be equal to the quantity. For instance: 6 = 1 + 2 + 3, and 28 = 1 + 2 + 4 + 7 + 14. I like 2520 as a result of it’s the smallest integer than is divisible by all integers from 1 to 10 inclusive. Lastly, I like 24601 as it’s the prisoner variety of Jean Valjean from Victor Hugo’s Les Miserables. By the way, 24601 has prime components of 73 and 337. I like these numbers solely for his or her mathematical uniqueness; and like many quantity sequences, they haven’t any use in technical market evaluation. Presumably Keno! So why are individuals drawn to it a lot? Most likely due to its false potential for predicting the longer term and its cottage business of numerology advocates.

I’ve identified many profitable merchants and traders through the years. I have no idea anybody who trades with actual cash that makes use of junk science like Fibonacci numbers. I put out articles like this as a result of I see so many technical analysts that don’t perceive the instruments they use; they settle for them on face worth. Hopefully, now you can see the issues with doing it that method.  So, have been you offended by or appreciative of this text?

Dance with the Pattern,

Greg Morris

Greg Morris

In regards to the creator:
has been a technical market analyst for over 45 years starting from evaluation software program improvement, to web site evaluation and training, to cash administration. He has written 4 books: Candlestick Charting Defined (and its companion workbook), The Full Information to Market Breadth Indicators, and Investing with the Pattern. A graduate of the Navy Fighter Weapons “Prime Gun” College, Greg is a former Navy fighter pilot who flew F-4 Phantoms on the USS Independence.  He additionally holds a level in Aerospace Engineering from the College of Texas.

Greg has an extended historical past of understanding market dynamics and portfolio administration.
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