Why Might Charting Fail to Work

Why Might Charting Fail to Work?

It is easier for me to present the logical arguments against charting. First, it should be noted that the chartist buys in only after price trends have been established, and sells only after they have been broken. Since sharp reversals in the market may occur quite suddenly, the chartist will miss the boat. By the time an uptrend is signaled it may already have taken place. Second, such techniques must ultimately be self-defeating. As more and more people use it, the value of any technique depreciates. No buy or sell signal can be worthwhile if everyone tries to act on it simultaneously.

Moreover, traders will tend to anticipate technical signals. If they see a price about to break through a resistance area, they will tend to buy before, not after, it breaks through. If it ever was profitable to use such charting techniques, it will now be possible only for those who anticipate the signals it is doubtful that any profitable technical trading rules can be developed.

Charting may fail to work. Photo by Elena

Perhaps the most telling argument against technical methods comes from the logical implications of profit-maximizing behavior on the part of investors. Suppose, for example, that Universal Polymers is selling at around 20 when Sam, the chief research chemist, discovers a new production technique that promises to double the company's earnings and stock price. Now Sam is convinced that the price of Universal will hit 40 when the news of his discovery comes out. Since any purchases below 40 will provide a swift profit, he may well buy up all the stock he can until the price hits 40, a process that could take no longer than a few minutes.

Even if Sam doesn't have enough money to drive up the price himself, surely his friends and the financial institutions do have the funds to move the price so rapidly that no chartist could get into the act before the whole play is gone. The point is that the market may well be a most efficient mechanism. If some people know that the price will go to 40 tomorrow, it will go to 40 today. Of course if Sam makes a public announcement of his discovery as the law requires, the argument holds with even greater force. Prices may adjust so quickly to new information as to make the whole process of technical analysis a futile exercise.

Illustration: Megan Jorgensen

Placebo Effect

Placebo Effect

The word placebo has many meanings and a rich history. It originates in a tale of mistranslation, religion and behavioural idiosyncrasies. Placebo controls may have helped to dehypnotize the public after mesmerism (Franz Anton Mesmer) and animal magnetism ‘medical’ sensations in the late 18th century (Finniss et al., 2010). A resembling term, nocebo, stands for an adverse or unwanted response to pharmacological or therapeutic treatment.

The medical definition implies a sugar pill or something else non-medicinal, that is supposed to be the medication. Placebos are often used in clinical studies to distinguish true effects of treatment from the comfort, expectancies, beliefs and perceptions that the subject may have. A limitation of such methodology is that the glucose level change affecting cerebral metabolism may confound the variables.

Placebo effects can be true and perceived. A self-fulfilling prophecy may also be involved. A patient may suffer from the flu and take a cold and sinus pill. Behind the scenes, unknown to this person, he or she may actually be sick because of stress. For optimal immune system function, psychological stability is important too. Reassured by the substance, the individual feels better in both senses.

Gothic Sphere. Placebo Effect. Photo: Elena

Mayberg et al. (2002) conducted Positron Emission Tomography (PET) scans to elucidate which brain areas show the highest activity during administration of placebos. Cortical areas that were most responsive: prefrontal, anterior cingulate, premotor, parietal, posterior insula and posterior cingulate. Least responsive: subgenual cingulate, parahippocampus and thalamus (‘the brain’s relay station’).

PET is a neuroimaging technique widely used in neuroscience along with functional Magnetic Resonance Imagery and (fMRI) and Computerized Axial Tomography (CAT). Some of the machinery takes up a whole room, but the sliced photographs greatly contribute to health care and scientific discovery.

Moerman & Jonas (2002) narrate that the meanings ascribed to the word pair are highly misguided. The duo proposes a new formulation “meaning response”. The placebo may be therapeutic in itself, if that (ever) is the right prescription.

In their review paper, Finniss et al. (2010) make it clear that the preconceptions persons hold can both mediate and modulate placebo effects. Classical conditioning is also listed as associated with placebo mechanism.

Classical conditioning dates back to the Russian Empire, where Ivan Pavlov trained dogs to salivate to the sound of a bell (conditioned response), because they were conditioned to associate the sound of the bell (conditioned stimulus) with food (unconditioned stimulus). In canines, salivation in anticipation of being fed is the unconditioned response. There may be a historical parallel between the process and the effect. The also called unconditional stimulus is the active drug. Employing this terminology variant, the unconditional response is getting well. The conditional stimulus is the placebo. The conditional response would be getting rid of the disease because of learning by association. The problem with this argument is that it seems to imply that human beings have more control over their organism’s health than they factually do. On the bright side, there are other ways of interpreting classical and operant conditioning.

It is health that is real wealth and not pieces of gold and silver. Mahatma Gandhi, Indian Philosopher (1869-1948). Illustration: Megan Jorgensen.

References:

• Finniss, D. G., Kaptchuk, T. J., Miller, F. & Benedetti, F. (2010). Biological, clinical, and ethical advances of placebo effects. The Lancet, 375: 986-995.
• Mayberg, H. S., Silva, J. A., Brannan, S. K., Tekell, J. L., Mahurin, R. K., McGinnis, S. & Jerabek, P. A. (2002). The functional neuroanatomy of the placebo effect. The American Journal of Psychiatry, 159 (5): 728-737.Moerman, D. E. & Jonas, W. B. (2002). Deconstructing the placebo effect and finding the meaning response. Annals of Internal Medicine, 136 (6): 471-476

Numbers Count

Numbers Count

Autocorrelation is the cross-correlation of a datum with itself. The kernel estimation method is a nonparametric procedure for testing economic models.

The two preceding sentences make little sense unless understood in the bigger context.

Statistical tools have been of considerable help to the economics, finance, business and accounting industries. A solid grounding in derivatives and mathematical notation is a must if one wants to work through countless proofs and demonstrations ubiquitous in econometric literature.

In mathematics, an asymptotic function portrayed graphically looks like a normal distribution bell curve with tails that never touch the horizon. Some definitions lists include that financial analysis models can be multivariate and univariate. Also, the martingale is a mathematical property used in financial modeling.

Financial forecasts are a complex task to say the least. Bollerslev (2001) shows that financial time series analysis is further complicated with market volatility. Through time, price changes follow market activity, clouding forecasts further.

Building on realized power variation, Barndorff-Nielsen & Shephard (2003) introduced the concept of realized bipower variation. Is bipower variation robust to jumps? The authors demonstrate that under certain circumstances, it can accurately predict integrated variance even with jumps.

Numbers count. Photo by Elena

Most undergraduate business or commerce programs have required mathematics courses as minimum conditions for entry. The mathematical background program is usually Linear Algebra and Calculus I and II, or any combination thereof. The prerequisites make perfect sense. Lacking a grasp on such foundations as the compound Poisson process and normal inverse Gaussian distribution, at least in the case of financial econometrics, the material would be all but impossible to comprehend. Nonetheless, the GraphPad Software Website provides an online calculator enabling computation of Binomial, Gaussian and Poisson probabilities.

Skewness refers to a situation in statistical analysis where the data group towards one side. Distributions can be normal, left-skewed or right-skewed. While skewness focuses on tails, kurtosis measures the peaks of the distribution.

Another statistical predictor has to do with least squares. According to the least squares estimation – respecting certain assumptions – determined model parameters would be good estimates of the parameters of the mechanism that brought forth the sample.

A financial econometrician wants to find the joint conditional density, to estimate expected return of market portfolios. Engle (2001) potential multivariate extensions to techniques estimating conditional densities.

The prevalence of subdivisions and overlapping of academic fields makes it somewhat harder to pin point the exact concepts that apply to financial econometrics. Still, it would be difficult to imagine this branch without mentioning these key ideas. Hopefully, the above has introduced the theoretical framework of the subject matter and related branches of learning such as mathematical finance.

References:

    Barndorff-Nielsen, O. E. & Shephard, N. (2003). Power and bipower variation with stochastic volatility and jumps. Working paper series No.152. CAF: Centre for Analytical Finance. University of Aarhus – Aarhus School of Business.

    Bollerslev, T. (2001). Financial econometrics: Past developments and future challenges. Journal of Econometrics, 100 (1): 41-51.

    Engle, R. (2001). Financial econometrics – A new discipline with new methods. Journal of Econometrics, 100 (1): 53-56.

    Raible, S. (1998). Levy processes in finance: Theory, numerics, and empirical facts. PhD Thesis. Mathematics Faculty, Freiburg University, Freiburg.

Cracking the Secret to Productivity

Cracking the Secret to Productivity

Everyone wants to be productive, whether it may be working or studying. We would like to emphasize the fact that studying is something on every university student’s mind nowadays. However, what is true secret to being productive?

The problem most of us have in not a lack of motivation to be productive, but rather, the need to stay disciplined and maintain productivity on a daily basis. In fact we can try and explore the many aspects of the thoughts in our minds and attempt to solve this age-old problem of productivity.

Willpower is not enough. This may be a scary thought, but it is actually true. So should we give up on being productive now and just go frolic in the snow while in the winter season or bathe in a swimming pool in the summer? According to scientific research done by Janet Polivy and Kenneth McGraw, we often tend to project the thought of the most difficult parts of a task we are trying to achieve, such as memorizing pathways of biochemistry, reading through hundreds of pages of your course pack or trying to understand exactly what that page of complicated physics formulas meant.

Numerous studies have also shown that there is a concept called “ego-depletion” which states that our willpower is limited and we are thus unable to rely on the idea of “willing” something to happen just by thinking about it. Instead, we tend to spend our time in small meaningless tasks such as going on Facebook or playing World of Tanks.

Avoid robot behavior which is counter-intuitive if nothing is going in your brain while your are working. Image: © Megan Jorgensen (Elena)

Zeigarnik Effect

So how do we overcome this intrinsic barrier which prevents us to be productive? Naturally, the first thing that should be done is to “get started”. Often the most difficult part of a task is starting on it; however, once you do begin, there is a mechanism in the brain called the Zeigarnik Effect. It seems that it is human nature to finish what we start and if we do not finish the task, we experience dissonance and discomfort.

The Zeigarnik Effect is almost like there is something poking your brain, telling you to finish the task you have started previously and will not stop unless you get back to it.

Now that we have started, how should we maintain focus and complete the task at hand? Research from the Federal Aviation Administration has revealed that taking breaks around 15 to 20 minutes in between long work sessions around 90 minutes resulted in a 16% increase in awareness and focus as well as the maintenance of higher level of energy throughout the day.

Therefore it appears that it is more effective taking breaks in between your work sessions instead of cramming everything into one long nine hour study session.

Discipline

How do we stay disciplined? The first step to improving your productivity habits is to create schedules and deadlines. These deadlines may not necessarily be the ones imposed by your boss, but rather ones throughout the day to maintain your productive progress. Studies conducted by Dan Ariely and al. revealed that university students who imposed deadlines for themselves performed far better and more consistently in school than those who did not. Furthermore Ariely and al. also found that those students who gave themselves too much time to complete a task before there generous deadline performed similarly to those who did not set a deadline at all.

Set a chart

Finally, set an accountability chart for yourself. An accountability chart is used to track your progress throughout the day and match it with your set deadlines.

Tracking your progress using this method will increase self-control because it allows you to see the work you have actually accomplished versus the over- and under-estimation of the work you think you have accomplished. This strategy also allows you to stop engaging in “robot behavior” which can actually be counter-intuitive if nothing is going in your brain while you are re-listening to that lecture you missed.

Conclusion

In conclusion, there are many aspects of productivity that we can understand and potentially overcome with the appropriate strategies. Understanding that willpower is simply not enough is the first step to a better and more productive live. Starting on a long journey ahead is important because it allows your brain to urge you to complete the task that you left unfinished. Pacing yourself is also important, since no one wants to spend hours upon hours staring at the computer screen or a textbook.

Finally, a word of advice is to stay disciplined by planning your day and tracking your progress throughout your completed tasks at hand.

With these strategies in mind, perhaps the next time you have to complete a task, you will not groan at the thought, but rather approach it in a positive and energetic manner.

References and sources:

•     Gary Huang. Techophilic, Winter 2013, page 11 (Technophilic is published by Technophilic Magazine Inc. by McGill Engineering Undergraduate Society).
•     Procrastination, deadlines and performance: self-control by precommitment. Ariely and Wertenbroch.
•     Getting a bigger slice of a pie. Polivy, Herman and Deo.
•     Undermining the Zeigarnik Effect: Another hidden cost of reward. McGrow and Fiala.
•     Ego depletion: Is the active self a limited resource? Baumeister, Bratslavsky, Muraven and Tice.
•     Implementation Intentions and Goal Achievement. Gollwitzer and Sheeran.

Major Depressive Disorder - MDD

Depression (Major Depressive Disorder – MDD)

Depression is the term commonly given to the mental illness with the medical name Major Depressive Disorders. Symptoms and diagnostic criteria are included in the DSM-5 (The Diagnostic and Statistical Manual – Fifth Version, published by the American Psychiatric Association or APA).

Seretonin deficiency has most often been attributed to depression in individuals, along with low self-esteem, external locus of control and negative and self-blaming ways of thinking. The class of drugs mainly used to treat depression are SSRIs (Selective Seretonin Reuptake Inhibitors). Perhaps the best known drug of this class is Prozac (the brand name for fluoxetine).

Cognitive-Behavioural Therapy or CBT also helps alleviate the disease’s symptoms. Psychological studies have shown that a pharmacological approach combined with CBT gives the best results.

Some patients cannot take antidepressants because it produces hypomania in them. Also, patients with Bipolar Disorder have to take mood stabilizers, such as Lamotrigine, for their depressive episodes because antidepressants could trigger a manic episode.

Depression is not weakness of character, as it was once considered. Numerous neuroimaging studies have shown brain differences in people with MDD as opposed to controls. Both neurochemical and structural differences were seen in the comparisons of the subjects’ brains.

Prolonged, untreated and severe MDD may lead to brain atrophy. For example, in one study mice who were depressed had damage to the hippocampus, the brain structure responsible for memory. However, mice who exercised exhibited neurogenesis or the birth of new neural cells.

Noir. Photo by Elena

Depression feels awful. Nothing that one loved or enjoyed before seems appealing anymore. One symptom is social isolation. When you are depressed, you do not feel like socializing with anyone. Nonetheless, psychiatrists and psychologists alike, recommend social support as a contributing factor to relieving the illness.

Depression is cyclical, in the sense that it comes and goes. Someone who has had one episode of depression is likely to have another one, while untreated depression sometimes goes away on its own. Nevertheless, depression is a very dangerous mental illness. Individuals with MDD may commit suicide.

Neurochemical imbalances in the brain almost always lead to some consequences. Take dopamine, for example. The illicit street drug cocaine produces a rush that releases an extreme amount of dopamine into the brain. Dopamine is a neurotransmitter involved in the reward circuitry. Thus, once the user becomes habituated to the high, nothing else can produce those emotions. Apparently, the euphoria felt during a cocaine high is only comparable to that felt after a huge accomplishment, if then.

Natural ways of battling depression or just depressed mood (two very different things!) include exercise, since it produces endorphins. Endorphins are the body’s own feel-good mechanisms. Other methods include eating pasta and turkey. Both foods contain tryptophan, a precursor to serotonin (the main neurotransmitter lacking in quantity in persons with Major Depressive Disorder).

Depression (the terms “depression”, “Major Depressive Disorder” and “MDD” are used interchangeably throughout the paper) presents selective attention. People with the condition tend to pay attention only to negative aspects of their lives. They focus on failures, on losses, on shortcomings, on bad luck. Indeed, this may be exactly why CBT has been documented as more effective in treating MDD than medication alone. CBT teaches healthy ways of thinking, because its premise lies that thoughts lead to feelings and emotions, which in turn lead to behaviour. By eliminating negativity and creating positivity, depressive symptoms may gradually be relieved.

Of course, the present paper is for informational purposes only and does not constitute medical advice. The following article about depression or Major Depressive Disorder (MDD) cannot be used for diagnosis. If you or someone you know has suicidal ideation, seek professional help immediately