| Scott Adams (author of them Dilbert cartoons) has suggested a trading scheme based upon the presumption that people make irrational decisions based on big round numbers. The scheme goes like this: 1. When the DOW is exactly 300 points below a big round number such as 10000, 11000, 12000, etc., buy the DOW. 2. When the DOW rises above its big round number by 300 points, sell everything.  (Click to enlarge.) Look at the green and red lines that straddle the big round numbers (lying 300 points to either side) then decide whether to adopt the Dilbert Rule.   ------------------------------------------------------------- It's a neat idea, so I wonder if there's lots of prices/values congregating near them big round numbers, so I count the number of DOW values in bands of 100 points and get this:  (Click to enlarge.) Seems they is lots of prices half-way between them big round numbers, eh? Ron McEwan sent me this neat chart of the S&P500 (plotted on a log-scale):  It likes to hang out with them powers of 10, eh? So I take a peek at the DOW (logarithmically speaking):  Conclusion? In the year 2051, the S&P500 gets to be 10,000 ... and the DOW 100,000.  P.S. On the planet Oznop, inhabitants have 9 fingers. The major stock index (the Wod) is attracted to powers of 9. In the log-scaled charts above, the vertical scale is the logarithm to the base 10 (not labelled 2, 3, 4 but rather 102, 103, 104) Since you can change [log to base 10] into [log to base B] just by dividing each [log to base 10] by the [log to base 10 of B], then the vertical scale just gets expanded .. but the shape of the chart don't hardly change. I got me a spreadsheet that'll do that for the DOW, here: http://www.gummy-stuff.org/Excel/logDOW.xls and for the S&P here: http://www.gummy-stuff.org/Excel/logSP500.xls Y'all can change the base of the logarithm.  and  Them powers of 9 look pretty attractive, eh? |
Sunday, August 15, 2010
the Dilbert Rule
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Guess we play with those Iron Condors on the power of ten, huh?
ReplyDeleteGlad to read the Gummy site will be kept by someone. It is so good. Glad also to see some continued financial stuff here. I followed a smart guy years ago that swore by the number 3 and adored the number 9 and mutliples of them, planet oznop resident maybe. My cursory glances seemed to say watch the 3s and 9s and I still look at them as 'magic numbers'. I wonder if you could find it in your heart to run a similar study as the one shown using multiples of 3s and 9s. Dow scaled at 300 point increments. If not I will still believe in these magic numbers. Thank you for all that you have given.
ReplyDelete"...using multiples of 3s and 9s"
ReplyDeleteGood idea ... so I've added to the BLOG post.
Thank you Peter for the addition. Another spreadsheet to add to my collection. If you are so inclined look at the Dow chart with the y-axis increments set at 900. The number of times these levels show up as support or resistance still amazes me. Perhaps I am seeing things. Thank you again for all you have given.
ReplyDelete"... the Dow chart with the y-axis increments set at 900."
ReplyDeleteI modified the spreadsheet so the y-axis shows the mutiples of 900 (or any other chosen number).
I don't like to label the y-axis with numbers:
900, 1800, 2700 ...
but rather
1, 2, 3 ...
'cause somebody will want to see the multiples of 1300 (instead of 900) and who knows the umpteenth multiple of 13?
Silly me. To quote Jimi Hendrick..."Now if six turned out to be nine. I dont mind, I dont mind." I will try and figure out how to make the congregating number chart because I am curious. Thanks again.
ReplyDelete