3 Reasons It’s Not Cool to Admit You’re a Fibonacci Trader

Fibonacci, a mathematician, lived in 1175. He was one of the greatest scientists of his time. Among his greatest achievements was the introduction of Arabic numerals to supersede the Roman figures. He developed the Fibonacci summation series:
1,1,2,3,5,8,13,21,34,55,89,144, ...

This mathematical series develops when, beginning with 1,1, the next number is formed from the sum of the previous two numbers.

Dividing any number of the Fibonacci sequence by the following number in the series approaches the ratio 0.618.

Why is it that of all my many technical analysis tools--candlesticks, chart patterns, volume, MACD, ADX, RSI, Stochastics--only Fibonacci retracements lower my sense of self worth? Maybe it's because...

#3 The Pyramid Of Gizeh

Oh look, I'm using a tool that ancient civilizations used before people grew smart enough to invent things like steel, cement, and cranes.

One edge of the Pyramid of Gizeh is 783.3 feet long, the height of the Pyramid is 484.4 feet. The length of one sideline divided by height leads to the ratio 1.618. The height of 484.4 feet corresponds to 5,813 inches (5, 8, 13) from the Fibonacci sequence.

#2 Plants

It's hard for me to maintain my self-image as a mature, well studied stock trader when I sit down to my trading desk and think about ahem, flowers. It sort of feels like my daughter asking me to hold her purse in a store.

The Fibonacci sequence can be found in the number of axils on the stem of a plant as it develops. A new branch springs from the axil and more branches grow from the new branch. When the old and new branches are added together, a Fibonacci number is found in each horizontal plane.

The Fibonacci sequence also occurs if we look at certain flowers. The number and arrangement of the florets in the head of a member of the composite family is a beautiful example of the Fibonacci sequence found in nature.

Iris = 3 petals
Primrose = 5 petals
Ragwort = 13 petals
Daisy = 34 petals
Michalmas Daisy = 55 and 89 petals

#1 The Logarithmic Spiral

Right. Scientology has wormed its way into even stock trading! This spiral crap is the stuff that Tom Cruise worships. Am I going Tom Cruize Crazy?

The spiral has been a common occurrence in the natural world for millions of years. The successive chambers of the nautilus are build on the framework of a logarithmic spiral. As the shell grows, the size of the chambers increases, but their shape remains the same. The length of the sides form a Fibonacci series.

Insider Trading At Bruce Berkowitz’s Fairholme Fund?

On April 30th, 2010, Bruce Berkowitz's Fairholme Fund revealed in a filing with the SEC a 69.4% increase in their holdings of AIG in the previous 6 weeks.

Now why would Bruce be buying AIG with both hands as if there's no tomorrow? Especially when you consider that AIG was under criminal investigation!

Then the news broke today that no criminal charges would be filed against AIG.

Let's put prejudice Jewish comments about Bruce Berkowitz and how the Jews have better access to information than average street traders like you and me aside. Insider trading is still illegal regardless of whether you are Jewish or not.

The SEC needs to investigate Bruce Berkowitz's Fairholme Fund. Here we have quick and massive buying in AIG, approximately 10,429,700 shares in the 6 weeks before it is released to the public that no criminal charges will be filed against AIG! AIG traded at an average share price of $37.50 during the 6 weeks before the Justice Department announced no criminal charges so that's a purchase of approximately $391,113,750!

It looks like Bruce had access inside the Justice Department and was told in advance that no criminal charges would be filed while the rest of us peasants were kept in the dark.

No one would have noticed Bruce's purchase had he not been so greedy by purchasing nearly half a billion dollars worth of shares in a 6 week period prior to the announcement that no charges would be filed against AIG.

Once again, people with a lot of money can buy access to information us peasant traders can't.

Is that really the Capitalism that George Bush and the Republicans have built over the last 8 years? Special favors and access to the rich while the average trader on the street gets screwed?

At some point we have to demand equal rights as smaller traders. We need a small investor's bill of rights.

Special favors for the rich while screwing the average citizen seems to be the way of the world in this great societal experiment we call Capitalism. It permeates through all facets of our society, including that of stock trading.

What Starving Stock Traders Can Learn From The DOW

The DOW is made up of only 30 companies. Bigass companies like General Electric, JP Morgan, and Bank of America.

In 2006, Mark Skousen who charges a hefty $1,000 per year for his stock picks touted the Dogs Of The Dow strategy as "a highly profitable way to uncover today's best bargains..."

The Dogs Of The Dow strategy became such an urban myth that a website dedicated to the strategy called DogsOfTheDow popped up claiming, "Dogs of the Dow is a stock picking strategy devoted to selecting high dividend stocks that would have given you a 17.7% average annual return since 1973!"

The truth of that matter is that the Dogs Of The Dow strategy is dead.

Dogs of the Dow worked decades back but today it doesn't and just exposes investors to additional fees and tax liabilities if comparing to a simple broad market index ETF like SPY.

By holding the 10 highest yielding stocks of the Dow 30 Industrials (the highest yielding stocks at a particular time are usually indicative of the worst recent performance since share price is inversely correlated with yield), a strictly executed "Dogs of the Dow" strategy slightly outperformed the Dow Jones Industrial Average at large over long periods of time. However, the Dogs of the Dow 2009 strategy or other recent years for that matter, no longer outperforms and at this point, why investors think it would is more urban legend and investor lore than it is logic and data.

In 2008, the Dogs Of The Dow strategy under performed SPY by losing 43% vs. a loss of 37% for SPY. In 2009, the Dogs Of The Dow strategy under performed SPY by gaining 24% vs. 26% for SPY. In other words, any amateur investor following The Dogs Of The Dow strategy for the last 2 years would have been better off just buying an ETF like SPY. Take that for a nerd kick you Dogs Of The Dow emo bi$ch.

I can just imagine the following 'behind closed doors' email from a computer at JP Morgan: "LMAO We actually convinced a lot of people to buy the worst companies on the Dow!"

Investors need to stop being so dog-sh$t insane. Didn't we all learn in our first couple years of trading that you buy up-trending companies in up-trending sectors? The profit thesis that every year you buy 10 eat dog-sh$t companies just because they pay a high dividend is retarded.

The beauty of technical analysis is that it shows you what the institutions are actually doing with their money without the lip service.