# Trading the sun



## Gringotts Bank (11 March 2013)

http://www-personal.umich.edu/~shumway/papers.dir/weather.pdf

Since Melbourne is about to end an insanely hot and unprecedented 11 day sunny streak in 3 days time, this might be worth a read.


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## Trembling Hand (11 March 2013)

LOL GB you ever get the feeling you are going mad? 

Will the market returns be different in Chicago compared to LA although its the same market


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## skc (11 March 2013)

I trust/hope you are just taking the pi$$ out of the paper / weather right?


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## Gringotts Bank (11 March 2013)

Trembling Hand said:


> LOL GB you ever get the feeling you are going mad?
> 
> Will the market returns be different in Chicago compared to LA although its the same market




Heat can cause one to go troppo.

Good question, but in the results section (after the references) you'll see that New York was the only US city included.   I realize people from all over the world trade on the NYSE, but they were just looking for sun:return correlation, no more than that.  A better study would be to look at an averaged world weather sunniness and compare that to the MSCI world index.


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## Trembling Hand (11 March 2013)

Gringotts Bank said:


> Heat can cause one to go troppo.
> 
> Good question, but in the results section (after the references) you'll see that New York was the only US city included.   I realize people from all over the world trade on the NYSE, but they were just looking for sun:return correlation, no more than that.  A better study would be to look at an averaged world weather sunniness and compare that to the MSCI world index.




OMFG you are serious!


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## Gringotts Bank (11 March 2013)

Trembling Hand said:


> OMFG you are serious!




I've bet everything I have, leveraged x100 that the market will go down after Melbourne cools in 3 days.  What's wrong with that?


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## sinner (11 March 2013)

heaps of research on this by respected names, the RBS paper on moon cycles (also tested by marketsci) being the most famous.

http://www.mcoscillator.com/learning_center/weekly_chart/are_traders_really_just_driven_by_the_sun/


> by changes in solar activity.  I have some trouble accepting it myself.  But every once in a while, it can be worthwhile to take a look at a wild idea just to see if there is any merit to it.  The evidence here seems to be strong enough to demonstrate that there is something going on there, even if it is not good enough to figure out how to make money off of it.




I recommend googling "mcoscillator sunspots" if you wish to see his other research on the topic.

Also, this

http://mpra.ub.uni-muenchen.de/40271/

EDIT: Moon stuff
http://www.markettiming.nl/img/image/file/RBS_MoonTrading13Jun10.pdf
http://marketsci.wordpress.com/2009/05/12/the-lunar-cycle-and-the-stock-market/
http://www.mta.org/eweb/docs/1998DowAward.pdf


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## skyQuake (11 March 2013)

_Correlation does not imply causation_


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## Gringotts Bank (11 March 2013)

sinner said:


> heaps of research on this by respected names, the RBS paper on moon cycles (also tested by marketsci) being the most famous.
> 
> http://www.mcoscillator.com/learning_center/weekly_chart/are_traders_really_just_driven_by_the_sun/
> 
> ...




Yes the sun spot stuff was interesting.  My favourite non-traditional study is the one in my signature.


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## Gringotts Bank (11 March 2013)

skyQuake said:


> _Correlation does not imply causation_




Of course that's true.

Causation would be almost impossible to determine in any method of analysis, wouldn't you say?  I think correlation is the best anyone can do.


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## sinner (11 March 2013)

skyQuake said:


> _Correlation does not imply causation_




I am not sure there is an implication of causality here, only that observed returns around cyclical points are higher/lower than returns starting at the other end of the cycle. If returns were spread out equally across the cycle lambda then wouldn't you say there is no relationship? But since returns are divided between cycle highs and lows there is *some* relationship.


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## skc (11 March 2013)

Fair enough. I also note that Suncorp (ASX:SUN) has vastly outperformed Cloud Peak Energy Inc (NYSE: CLD)... further supporting the notion that trading the sun is a valid strategy.


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## sinner (11 March 2013)

skc said:


> Fair enough. I also note that Suncorp (ASX:SUN) has vastly outperformed Cloud Peak Energy Inc (NYSE: CLD)... further supporting the notion that trading the sun is a valid strategy.
> 
> View attachment 51277




I've never put money on any astrological bet, but I am consistently intriuged by return profiles which differ based on astrological cycles, as if you don't believe in the astrology then it seems pretty inexplicable as to how those return profiles can exist.

It's not like people are doing tests and finding there is no (or a statistically insignificant versus random and control signals) relationship between various cycles and market returns, so what's the basis for your derision?


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## Trembling Hand (11 March 2013)

sinner said:


> so what's the basis for your derision?




The more I see people chasing the _key_ to crack the code the more I feel like retreating to my own cave. One where I can go about improving my trading skills and leave the 2 bob hopefuls to fanciful dreams of finding the easy way to one day becoming profitable.


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## sinner (11 March 2013)

Trembling Hand said:


> The more I see people chasing the _key_ to crack the code the more I feel like retreating to my own cave. One where I can go about improving my trading skills and leave the 2 bob hopefuls to fanciful dreams of finding the easy way to one day becoming profitable.




Shame you see it like that TH, because all I saw was GB sharing a research paper (incidentally one which I haven't read previously) and getting slammed for it.

What could have been an interesting discussion, as usual for this forum when it comes to technicals, ended up a boring fight. At least in this case, equity curves have been provided.

"It is the mark of an educated mind to be able to entertain a thought without accepting it."


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## Trembling Hand (11 March 2013)

sinner said:


> "It is the mark of an educated mind to be able to entertain a thought without accepting it."




Problem is though Sinner that there is a plethora of "research papers" on all sorts of edges. Until one goes about actually forward testing they mean nothing, just like every other two bob backtest. Forward test is the traders 'peer review". This one clearly fails the common sense test. What does sunny days in NYC got to do with what the futs traders are doing/thinking in cloudy Chicago?


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## chops_a_must (11 March 2013)

Trembling Hand said:


> Problem is though Sinner that there is a plethora of "research papers" on all sorts of edges. Until one goes about actually forward testing they mean nothing, just like every other two bob backtest. Forward test is the traders 'peer review". This one clearly fails the common sense test. What does sunny days in NYC got to do with what the futs traders are doing/thinking in cloudy Chicago?




I reckon could it actually make sense.

Sunny weather is associated with less depression and greater wellbeing.

Therefore resulting in more optimism.


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## Trembling Hand (11 March 2013)

chops_a_must said:


> I reckon could it actually make sense.




How can the sun shinning in a city where the majority of traders DO NOT live have an effect on them?


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## sinner (11 March 2013)

Trembling Hand said:


> Problem is though Sinner that there is a plethora of "research papers" on all sorts of edges. Until one goes about actually forward testing they mean nothing, just like every other two bob backtest. Forward test is the traders 'peer review".




No disagreement from me here. 



> This one clearly fails the common sense test. What does sunny days in NYC got to do with what the futs traders are doing/thinking in cloudy Chicago?




I'm not sure if you bothered to read the paper. The main finding is that the explanatory power of sunshine/cloudiness for returns is relatively low, r^2 = 0.02 ...(to be expected) despite being statistically significant. So it's not like there is huge returns to be had buying the NYSE composite on sunny NY mornings. The authors of the paper are more interested in behavioural aspects of the findings, such as



> But we think the main practical implication of our findings is somewhat less direct. Our results suggest that investors can benefit from becoming aware of their moods, in order to avoid mood-based errors in their judgments and trades.




and, having already pointed out the well understood link between mood and sunshine:



> Our findings also suggest some broader implications for asset pricing. Sunshine is just one of many influences on mood. In confirming the effect of mood on asset prices, this study suggests that other mood effects may be important. For example, as discussed in Section I, negative moods tend to stimulate effort at careful analysis, whereas positive moods are associated with less critical and more receptive information processing.


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## Gringotts Bank (11 March 2013)

Trembling Hand said:


> How can the sun shinning in a city where the majority of traders DO NOT live have an effect on them?




The "how" is nice to know, but not essential.

If my grass grows more quickly when BHP is dropping, and I can identify a strong correlation, and I can watch that same pattern play out in real trading, then that's a valid short system.  It will make money.  I don't need to know how, even if it seems ridiculous to me.  The system will continue to perform as long as it does.  Maybe at some point in the future, such a "grass growing BHP short sell system" will stop making money.

But when you compare this to something you'd consider "reasonable" like an open range breakout trading system, there's no difference.  You don't know why it works (even though you have theories, there's no proof at all).  And at some point, it will stop working, and once again, you won't know why or how.


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## Trembling Hand (11 March 2013)

Gringotts Bank said:


> You don't know why it works (even though you have theories, there's no proof at all).  And at some point, it will stop working, and once again, you won't know why or how.




GB I guess thats the difference between the three professional traders on this site rubbishing it and the other ...... err?.....non professionals thinking its useful.

There is a good correlation for you. And its a 1.


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## Gringotts Bank (11 March 2013)

Trembling Hand said:


> GB I guess thats the difference between the three professional traders on this site rubbishing it and the other ...... err?.....non professionals thinking its useful.
> 
> There is a good correlation for you. And its a 1.




Were you and skc bullies at school?

I notice you both pulled your heads in very quickly when sinner arrived and explained it to you.


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## Trembling Hand (11 March 2013)

Gringotts Bank said:


> Were you and skc bullies at school?




Nah mate a jock...... sorry just used to winning...............


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## Trembling Hand (11 March 2013)

By the way I think skc has on many accusation shown remarkable restraint and respect. I on the other hand ......


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## Trembling Hand (11 March 2013)

Of course one always has the ability to prove something right by actually putting up 100 or so trades........

 This is me not holding my breath.


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## skc (11 March 2013)

Gringotts Bank said:


> Were you and skc bullies at school?
> 
> I notice you both pulled your heads in very quickly when sinner arrived and explained it to you.




GB, no I was not a bully at school. I was one of those ultra smart kids . 

I was rubbishing the paper, not you personally. I actually assumed you were sharing a paper because you found it to be ridiculous... So don't be too sensitive about it. And any time in the future when it may appear that I am rubbishing you... I am not. I am rubbishing your view or your logic in those posts, not you personally. 

And the paper is rubbish for the reason TH has already stated. There is no way for the cloudy Chicago trader's mood to be affected by the sunniness or otherwise at NYSE. I am open to ideas of market cycles, mood affecting market behaviour and all that, but these things can't trumpt logic and common sense. I don't care how strong a correlation there is between grass in your backyard and BHP share price - it won't be useful to any real trader unless he/she can logically find a plasible explaination to the observation. 

As to "pulled my head in quickly"... Posting on the forum is seconardary to many things in life (such as actually trading), so forgive me for not responding within the designated time period (which I wasn't aware of such). Plus TH has already highlighted the logical BS in the paper and there was no sensible response. So I had nothing further to add.



sinner said:


> *I've never put money on any astrological bet*, but I am consistently intriuged by return profiles which differ based on astrological cycles, as if you don't believe in the astrology then it seems pretty inexplicable as to how those return profiles can exist.




So why not?


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## skc (11 March 2013)

Gringotts Bank said:


> Heat can cause one to go troppo.
> 
> Good question, but in the results section (after the references) you'll see that New York was the only US city included.   I realize people from all over the world trade on the NYSE, but they were just looking for sun:return correlation, no more than that.  A better study would be to look at an averaged world weather sunniness and compare that to the MSCI world index.




FWIW, if they determined the weight of money trading the NYSE geographically (e.g. 25% NY, 20% Chicago, 15% LA, 10% Tokyo etc) and calculated the weighted average relative sunshine in those cities where trading decisions are made, and find some correlation, then I won't rubbish the paper nearly as much.


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## sinner (11 March 2013)

skc said:


> So why not?




Purely on a relative alpha basis. Why long lunar cycles when you can short (for example) volatility? 



> FWIW, if they determined the weight of money trading the NYSE geographically (e.g. 25% NY, 20% Chicago, 15% LA, 10% Tokyo etc) and calculated the weighted average relative sunshine in those cities where trading decisions are made, and find some correlation, then I won't rubbish the paper nearly as much.




lol! So you've made a big assumption, something like: authors conclusion is that the sun exposure in NY completely drives returns on the NYSE. Then proceeded to rubbish said strawman. Bro, do you even logic?

The findings are pretty tame, and like I said the r^2 is something like 2%, hardly a massive scientific revelation? Exactly nobody, except for the "3 professional traders" in this thread, have interpreted the research paper GB posted (especially if they read it) as saying the sun drives magical unicorn returns in the local index.


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## sinner (11 March 2013)

Is this thread too long for you to read? That's OK, I've made a quick summary for anyone who needs to catch up:

Scientist: I would love to test hypothesis X, as the solution for commonly asked question Y. I will gather some data and attempt to observe whether the hypothesis is incorrect, correct or needs refining. I am not married to the result and will report it objectively. Hopefully this will build on the previously completed research on Y, and advance understanding for all mankind.

"Professional Trader": I know X is impossible, even though I've never tested against it, therefore logic dictates I will mock and deride all who attempt any discussion of hypothesis X or even question Y, especially in spite of existing research which seems to indicate further investigation would be useful.

Fin.


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## Trembling Hand (11 March 2013)

sinner said:


> Scientist: I would love to test hypothesis X, as the solution for commonly asked question Y. I will gather some data and attempt to observe whether the hypothesis is incorrect, correct or needs refining. I am not married to the result and will report it objectively. Hopefully this will build on the previously completed research on Y, and advance understanding for all mankind.
> 
> "Professional Trader": I know





That one can find 100,00000's of tiny tiny fleeting correlations if one data mines hard enough but they don't matter a F to profitable trading. THEREFORE I would not, in my not so humble opinion, waste my time on such human effort and deprive mankind of any practical advancement.


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## minwa (12 March 2013)

Are markets meant to have a logical explanation to them ?

This is like Fundamental vs Technicals that the market wizard guy mentions, you will find people completely rubbishing each others method which is making millions. Should read the chapter on Zen and trading or something like that which sounds ridiculous like trading astrology yet apparently provides massive returns.


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## Trembling Hand (12 March 2013)

I just wasted another 10 min of my life rereading this and they seem to be doing the classic back-testing F-up by taking a trigger in the morning and using yesterdays close price.

Nowhere have they stated that their returns are from trade-ble numbers, that is open prices rather they are using index data of "daily returns" which is todays close less yesterdays.


 LOL 

Scientist hey!!


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## herzy (13 March 2013)

Sorry to jump back a bit, but this is a question for TH and SKC - as GB eloquently said with the grass/BHP example, isn't technical trading based purely on correlation rather than causation? Isn't that the main difference between technical trading, and a causation-based fundamental approach? With this in mind, I wonder how skc doesn't care how strong a correlation is without a plausible explanation. 

I'm interested in plausible explanations for candlesticks, formations (heads and shoulders, etc) trends, etc that isn't purely correlative - because the lack of causation was something that put me off technical trading initially.


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## Trembling Hand (13 March 2013)

herzy said:


> - because the lack of causation was something that put me off technical trading initially.




Then Like GB you don't understand technical trading.


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## skc (13 March 2013)

herzy said:


> Sorry to jump back a bit, but this is a question for TH and SKC - as GB eloquently said with the grass/BHP example, isn't technical trading based purely on correlation rather than causation? Isn't that the main difference between technical trading, and a causation-based fundamental approach? With this in mind, I wonder how skc doesn't care how strong a correlation is without a plausible explanation.
> 
> I'm interested in plausible explanations for candlesticks, formations (heads and shoulders, etc) trends, etc that isn't purely correlative - because the lack of causation was something that put me off technical trading initially.




There's a distinction between plausible causation vs possibility of causation. On grass vs BHP share price, I rank the possibility of causation as zero. There is nothing in my limited knowledge that can suggest any possible causation. If someone can do new research using the right method to prove that for the betterment of mankind - good on them and I'd be the first to read the paper. But until then I will simply ignore that piece of information.

On chart patterns vs share price... ther are many possible causations. E.g. A support is found when the shares are overwhelming under valued. While one may not be able to pinpoint or verify the exact causation, he/she is still able to see how it can indeed has some influence (even by self-fulfilling).

But that's not really the point of most technical analysis anyway. A head and shoulder pattern (assuming you believe in such patterns) doesn't cause the share price to bounce. It is a record of share price movement that shows the activities of buyers and sellers, and such pattern has a x% chance of breaking out. It's like saying a flud is often preceeded by a sore throat and a runny nose - but they are not the cause of the flu.


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## herzy (13 March 2013)

Trembling Hand said:


> Then Like GB you don't understand technical trading.




I absolutely agree that I don't understand technical trading (GB seems like a sharp-witted guy on these forums, but I have no idea about his trading ability). Disappointed that you chose to simply point out my (self-professed) lack of knowledge, and ignore my actual question. I realise there is often a lot of cat-fighting when it comes to trading, but my question was genuine. 

Thank you skc for the explanation.


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