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The Hindenburg Omen is a misguided use of the scientific method of inductive reasoning coupled with experimental data. It is silly science; it is an abuse of real science.
Unfortunately, there are a small band of professional technicians and a much larger cohort of amateur investors who adhere to its false signals. Even the most current version of the Hindenburg Omen belongs in the trash heap of technical analyses.
I say current version because the multiple criteria embedded within the final signal have been modified almost every time it is tested in the investment world. The obvious purpose of the historical changes were to secure a better fit with the expanding data set. The Hindenburg Omen is a distinguished illustration of misdirected data mining in its most evil format.
For those MFO members not familiar with this technical tool, here is the Wikipedia Link that does a fair and balanced review of the Omen and its checkered history:
The Wikipedia article concludes that a likely shortcoming of the Omen results from over-fitting of the data. I concur.
As data was amassed and the presently current version uncovered as a deficient forecasting tool, the Hindenburg Omen advocates were constantly forced to introduce additional parameters to achieve an acceptable correlation with the accumulating data.
Put in enough variables and a good fit to any data is almost guaranteed with some mathematical magic. But that does not mean that the resultant correlation is a reliable forecasting tool. Absolutely not. Correlation and causation are two distinctly different entities.
It amazes me that the Omen still retains a loyal following after so many prediction failures and with its constant manipulations. Its credibility and reliability are highly suspect. I suppose wishful thinking is eternal. When investing that could be a dangerous trait.
The professionals who support the behavioral aspects of the investment decision process often say that “ it’s not what you know that counts, it’s how well you know yourself”. That little bit of folk wisdom is dead on target.
I am not a huge fan of technical analysis, but that discipline has generated far superior tools to enhance the odds of a reliable forecast over what the Hindenburg Omen offers.
Why is the Omen semi-popular? The primary reason is that true believers just want to believe. But I submit that an equally likely second candidate reason is that the secret is in the name itself, Hindenburg Omen. It evokes an air of mystery and a memory of a disaster that was filmed in real time, and later reproduced in a few memorable movie stories.
In his amusing and informative book “Life: The Odds”, Gregory Baer speculates that the title of a best-seller is equally important to the book’s sales as its content. If he is anywhere near correct, then naming the technical signal “The Hindenburg Omen” was pure marketing genius.
If you doubt my bottom-line opinion on it, invest using the Hindenburg Omen at your own risk and at the peril of your end wealth. Enough said.
Comments
The Hindenburg Omen is a misguided use of the scientific method of inductive reasoning coupled with experimental data. It is silly science; it is an abuse of real science.
Unfortunately, there are a small band of professional technicians and a much larger cohort of amateur investors who adhere to its false signals. Even the most current version of the Hindenburg Omen belongs in the trash heap of technical analyses.
I say current version because the multiple criteria embedded within the final signal have been modified almost every time it is tested in the investment world. The obvious purpose of the historical changes were to secure a better fit with the expanding data set. The Hindenburg Omen is a distinguished illustration of misdirected data mining in its most evil format.
For those MFO members not familiar with this technical tool, here is the Wikipedia Link that does a fair and balanced review of the Omen and its checkered history:
http://en.wikipedia.org/wiki/Hindenburg_Omen
The Wikipedia article concludes that a likely shortcoming of the Omen results from over-fitting of the data. I concur.
As data was amassed and the presently current version uncovered as a deficient forecasting tool, the Hindenburg Omen advocates were constantly forced to introduce additional parameters to achieve an acceptable correlation with the accumulating data.
Put in enough variables and a good fit to any data is almost guaranteed with some mathematical magic. But that does not mean that the resultant correlation is a reliable forecasting tool. Absolutely not. Correlation and causation are two distinctly different entities.
It amazes me that the Omen still retains a loyal following after so many prediction failures and with its constant manipulations. Its credibility and reliability are highly suspect. I suppose wishful thinking is eternal. When investing that could be a dangerous trait.
The professionals who support the behavioral aspects of the investment decision process often say that “ it’s not what you know that counts, it’s how well you know yourself”. That little bit of folk wisdom is dead on target.
I am not a huge fan of technical analysis, but that discipline has generated far superior tools to enhance the odds of a reliable forecast over what the Hindenburg Omen offers.
Why is the Omen semi-popular? The primary reason is that true believers just want to believe. But I submit that an equally likely second candidate reason is that the secret is in the name itself, Hindenburg Omen. It evokes an air of mystery and a memory of a disaster that was filmed in real time, and later reproduced in a few memorable movie stories.
In his amusing and informative book “Life: The Odds”, Gregory Baer speculates that the title of a best-seller is equally important to the book’s sales as its content. If he is anywhere near correct, then naming the technical signal “The Hindenburg Omen” was pure marketing genius.
If you doubt my bottom-line opinion on it, invest using the Hindenburg Omen at your own risk and at the peril of your end wealth. Enough said.
Best Wishes.