Recently, I had a reader ask me about stock market astrology. Personally, It was never something on my radar, but I thought I would look in to it anyway.
Contents
- Disclaimer
- What Is Stock Market Astrology?
- Does It Work?
- False Claims and Signals vs Noise
- Data Mining
- Concluding Remarks
There are many methods used to help aid in investment decisions.
Of all the different tools there is nothing more otherworldly than stock market astrology, literally.
This article will touch upon stock market astrology as well as discuss separating alpha from noise.
Disclaimer
I am probably the last person to be qualified to write an article on the merits of stock market astrology.
Until I was 10, I believed my zodiac sign was a Taurus.
Actually, I am a Leo.
Thus, I am going to approach this article from a critical academic standpoint.
Perhaps not giving it enough research but asking the important questions.
That may be unfair, so feel free to leave a critique.
I would be interested to read any large-scale studies verifying the merit of using astrology in the stock market.
What Is Stock Market Astrology?
Stock market astrology is the practice of relating movements of planets and other celestial cycles to returns in the financial markets.
The idea is that by studying astrology we can take advantage of certain stocks and sectors depending on certain times that these move in and out of favor.
Hence creating excess returns from the market.
Below we have the astrological data for a day.
We can see that over the course of the day we have different forces in effect with the movements of planets and moons. Inherently each day is different as the planets, moons and earth orbits.
By equating these planets to certain financial conditions, it can provide a “signal” for an astrological trade.
Source https://twitter.com/AstroGann33
Additionally, we have points or “transits” that are specific to individual users.
Thus, according to stock market astrology, we may be lucky if we place our bets at the ideal time for our personal transits, shown below.
Source https://twitter.com/AstroGann33
Does It Work?
In researching this article, I had a look at SSRN (Social Science Research Network) to see if there had been any papers written recently on stock market astrology, nothing.
Unsurprisingly, there are no astrological departments at JP Morgan.
There is a lot of modelling going on in the investment world.
Though nothing modelling star patterns.
Our first question to ask ourselves is whether, if using astrology in the stock market has any edge, why are hedge funds, who have billions of dollars at their disposal for research, not using it?
This should be our first red flag.
False Claims and Signals vs Noise
It is not challenging to make money in the stock market, but it is hard to beat it.
The internet is fraught with people who hype get rich quick schemes.
Those promoting their “signals.”
Most of these signals are markedly false.
Take the common one of doubling your money frequently.
Whenever any of these gurus make this claim I am reminded of a great quote.
A penny earned and a penny lost are immaterial, but if you double a penny for 30 days you have $5,368,709.12!
Source: www.newtraderu.com
So, unless these gurus are as rich as Bezos it is a sure-fire false claim.
The reality is that the stock market is dominated by noise, the signal, while there, is often faint.
Why?
Because if it were large everyone would take advantage.
People would pile in.
Ultimately it would be depleted to the point of being simply made into a risk premium.
Edges such as a 51% risk rate and a 1/1 Risk to Reward ratio can make you rich.
Don’t believe me?
Ask the casino.
One small study gave an astrologer a financial analyst and a child five thousand pounds to invest how they deemed fit in the FSTE 100.
The child won.
Now before you start taking advice from little Oliver, let’s think about it.
This study had only 3 participants and only followed them for a short time.
Due to the sheer amount of noise in the market and the way the study was designed the results were basically going to be random.
Data Mining
It is easy to data-mine to find claims.
This is where one goes about looking for data to support evidence of stock market returns.
At a certain point, you are going to find something that seems to correlate. If we look at enough astrological data, we are bound to find something that appears to correlate to S&P returns.
Now we have our signal. We can draw a fancy chart showing our performance of our “strategy” and how it does so well.
Sell it to some users and milk it till its luck runs out.
Ultimately once it underperforms, we are okay.
We can head to the hills with the money we made or find another thing that correlated in the past and choose that instead.
If neither of these work, we can do a personal favorite of doubling down and blaming it on our subscribers “psychology.”
The key to these results is that correlation does not equal causation.
If we look long enough, we can find something that “worked” in the past.
That does not indicate that it necessarily has any predictive power in the future.
For it to have any predictive ability we must identify why one event (in this case astrological events) lead to another (stock returns).
This must be both backed up with evidence and intuitively make sense. Otherwise, it is simply more noise.
So far, I cannot definitively make that connection.
A lot of stock market astrology is hyped to be used in conjunction with other methods such as technical analysis.
This to me seems an excuse that as a stand-alone method it cannot survive.
Combine it with other methods, muddy the water, then you can’t criticize or attribute the lack of performance to that individual tactic.
Concluding Remarks
Investors are welcome to use whatever metrics they want to choose how to allocate their hard-earned money.
Allocating it based on astrology is fair if that allows the investor to sleep better at night.
Though ultimately those who claim that using astrology to generate alpha over that of the market need to first justify their claims to move themselves out from a pseudo-science.
So far this has not happened with any statistical certainty.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
