Thursday, September 14, 2006

Fibonacci cobblers

The Independent reports new research from Roy Batchelor, professor of banking and finance at City University's Cass Business School, into the belief, apparently widespread among highly-paid stock analysts, that aspects of the behaviour of stock price movements obey occult rules derived from the well-known Fibonacci sequence and the Golden Mean, all mixed up with the surprisingly persistent Elliot Wave hypothesis ('theory' would be too kind a word). To no one's great surprise, this does indeed turn out to be bollocks -

He and the Cass researcher, Richard Ramyar, concluded that, contrary to beliefs held by many technical analysts, markets do not reverse at levels indicated by Fibonacci ratios.
Professor Batchelor said: "Nowadays, we think that most short-term movements in prices in financial markets are random. However, it is a natural human characteristic to look for patterns even in random data, and traders are under added pressure to rationalise their actions and display expertise.
"Theories of stock-market waves are manifestations of this illusion of control, the instinct that makes the dice harder when we want a high number."

As Julia Finch in the Guardian notes:
So will the nonsense now stop? No chance, [Batchelor] says, because the chart community needs every possible straw to grasp at - even if it is utter cobblers.



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