Trading with "Victoria Secret"

written by Sergey Tarassov

Does this situation sounds familiar to you?

Two persons are speaking. One is a presenter of the gold price forecast (it may be me, it may be someone else; it is a forecaster; his remarks are in red). Another is you - a person who may use this forecast, therefore a person who wants to know as much as possible about it and how to make it with Timing Solution software.(these remarks are in blue).

Here is the discussion:

- I spent a lot of time and effort conducting a thorough analysis of the Gold price chart. I used many scientific concepts to do that. And I have found that these cycles are very important for Gold: 73.25, 119.03 and 38.15 days cycles. Finally, we have got a model for Gold behavior. I can say that hundreds and hundreds of hours of hard core research were not wasted.

You are fascinated and want to know more. You have a very natural question:

- Why these cycles, not some other cycles?

- It is a good question. Look, the research shows that these cycles provide a good projection line for Gold, here it is, the red line, which is a superposition of these three cycles - 73.25, 119.03 and 38.15 days cycles. Do not forget that the amount of overtones is 8:

- Yes, it looks impressive. Still, I would like to know if you have tried your model on out of sample data. I need to be sure that this is not just curve fitting?

- Surely I did. The example is right before your eyes; the out of sample data used since May till September, four months, and the forecast accuracy for this data is 0.32:

Do not rush to trade this!

Now I, Sergey Tarassov, have something to tell you. Not that fictitious forecaster. I need to tell you a deep secret. I have found these cycles in Victoria's Secret online catalog. I picked up these products, for no particular reason, just like that:

73.25 Canadian dollars - support plunge sport bra;

119.03CAD -  Victoria shoulder bag in V-quit;

38.15CAD - bombshell passion fine fragrance.

Do these prices look like cycles for you?

Why Victoria's Secret?

1) I know absolutely nothing about this store, I know just the name - I have spent once more than an hour at its doorstep waiting my family shopping there.

2) The typical prices there are usually below 100 CAD, - values that I usually look for cycles for swing trading. (The stores that I know well - with cameras, lenses, drones, computers and bicycles, - provide longer term cycles).

Initially I planned to include all the above into a big article that explains in detail how easily we can be fooled  by the beauty of harmonic analysis. I have started it. Then I have found that I said about that many, many times, and the article is turning into a boring moralization for grown up kids. So I have deleted it. Only this has left:

My friends, I highly recommend to be very cautious choosing cycles. Do not choose too many cycles. And each chosen cycle should be examined. If you want to accept a scientific approach, you have no other way. Otherwise it will be a guessing game, toss of a dice. And if so, why not to continue Victoria's Secret modeling?

At this point you should decide what you are going to do: play Chaos games or accept the scientific discipline of thinking. If you prefer the scientific approach, you should be very picky when you choose cycles for your analysis. Tossing cycles randomly leads nowhere. Sooner or later you will stop doing that and decide that cycles do not work in finance.

That's it.

Sergey Tarassov

Toronto, Canada

September 1, 2020