[TonyM]

Technical Analysis: Use of “Lunar Indicators” by Tony Morland
June 2007 / Jumada Al-Awwal 1428


Maybe this is old news to some in the financial and technical analysis community, but having seen & heard a lot of criticism of "lunar indicators" by those who do not believe in astrology, (or reality?? … I did not receive a very warm welcome when I posted this article elsewhere after I wrote it a few weeks ago, but that’s another story…. so anyway), I would like to, once again :-) share with you my “Defense of the Lunar Indicator”.

In addition to seeing technical charts that show that sometimes an indicator works, I always a lot feel more comfortable personally with an indicator if there is some sound fundamental justification of why it should work, not just in terms of the computational algorithm, but also in terms of some underlying physical or economic principle. So, the justification for the lunar indicator is to follow.

In many cases, money flows into and out of the market at or around certain specific dates. For example, the "January effect", or the effect of tax selling before the end of the financial years (different in USA, Australia & other countries), or the "window dressing" effect of investment institutions re-adjusting their portfolios at the end of each quarter,
or of new funds being allocated at the beginning of the month, etc. Also, many commodities traders (and some stock traders) make use of well-known “seasonal effects”, so the idea of specific times being important is definitely reasonably widely accepted. And so, why not the moon? I think a better question to ask is: “… but why the moon”? Let’s get to that in a moment.

Of course the particular dates mentioned above provide no guarantee of what the market will do, but they can sometimes give clues, especially if you have some other system and you are waiting for additional confirmation, or at least some reassurance of a slightly improved expectation value of the reward : risk ratio associated with a trade. A little bit of extra knowledge and an understanding of the “why it is happening or is most likely to happen today” can be a help. The dates of the market occurrences that most Westerners are familiar with are based on the standard, internationally accepted Gregorian calendar, or its near equivalent the Fiscal calendar, in which week #1 of the year starts in the week containing 4th January.

These are the calendars that (almost) everyone everywhere in the world knows about, but Islamic countries and Muslim people use the Hijri Calendar, either in addition to, or in some cases instead of the international standard Gregorian calendar. The Hijri calendar also has 12 months, but these months are either 29 or 30 days long, so the total length of the Hijri year is 354 days, not 365 days. The Hijri or Islamic calendar is a LUNAR calendar. Very interesting!!!

The first day of each month of this lunar calendar was traditionally based on the "hilal" or first sighting of the lunar crescent or new moon. For widespread general use in modern times, the Tabular Islamic Calendar calculates the Hijri date based on arithmetic rules. More info about this can be found on various Internet sites such as:
http://www.rabiah.co...troduction.html
http://www.phys.uu.n...slam_tabcal.htm
http://www.islamicfi...eConversion.php
http://www.fourmilab...ments/calendar/

Basically, in technical analysis, any lunar indicator which is calculating the time of the new moon is in fact also calculating the start date of each Islamic month (and the following full moon then corresponds to the middle of the corresponding Islamic month).

A number of Islamic countries (e.g. the Arabian Gulf states and others) have great financial strength and are actively involved in trading and investment. For example Kuwait, well known as one of the world's major oil producing countries, now generates as much revenue from its international investment activities as it does from oil, ref. for example: http://www.kuwaitnat...dary.asp?Page=3

As already noted, the date (in the standard Gregorian calendar system) is not necessarily always a good predictor of impending price movements, but it does at least make sense to consider the possibility of timing effects based on money flows.

I did some research a few years ago that suggested to me that:

1) Any trading system based on calendar timing ALONE is unlikely to have a very high probability of success, and

2) Lunar timings ALONE are even less reliable than conventional calendar timings.

Therefore I am definitely not advocating either lunar-only or calendar-only trading systems. However, as a potential additional component, they may definitely be worth thinking about.

If you consider your technical indicators as a set of basis functions, and you are trying to improve performance by maximizing orthogonality of these basis functions, then the lunar indicator is orthogonal to just about everything else that I can possibly think of, and so it is NOT at all “loony” to consider it, remembering that in the business world, the time-based nature decisions is something very real. As you think of trade timing, based on fundamental analysis, technical analysis or both, it is good to remember that, in the international investment world, the investment timing decisions of financially important countries or individuals may well be made not only according to the standard (Western) Gregorian calendar but also the Islamic Hijri calendar, which is lunar.

So, in conclusion, there is a very valid fundamental reason to take seriously the concept of the “lunar indicator”. An example of such an indicator for technical analysis can be found here.

Best wishes to traders around the world, from Tony M.

[StorkBite]

Technical Analysis: Use of “Lunar Indicators". Download available here.

[jose]

Excellent post, Tony - we look forward to more from you. :)

I took the liberty of editing your link to the original Lunar indicator code, as TC members may or may not have access to the private mailing list where I had previously posted an earlier version of the unique Lunar code. The Lunar indicator Mk IX has just been updated at MetaStockTools.com.


jose '-)

[jose]

Here is an example of a basic stats tool that may (or may not) find up/down market biases on Full moon days:

{Lunar cycle stats v1.0
 Plots % of Up/Down market days
  on Full/New moon signals.
 http://www.metastocktools.com }

{ User inputs }
stat:=Input("Market move:  [1]Up,  [2]Down,  [3]Unchanged",1,3,1);
type:=Input("signal select:  [1]Full Moon,  [2]New Moon",1,2,1);

{ Reference Lunar cycle indicator }
x:=Fml("Lunar cycle");

{ Select FM/NM signals }
x:=If(type=1,x=1,x=-1);

{ Up/down market days }
up:=C>Ref(C,-1);
down:=C<Ref(C,-1);
same:=C=Ref(C,-1);
stat:=If(stat=1,up,If(stat=2,down,same));

{ Stats % }
statsPer:=Cum(x AND stat)/Max(Cum(x),1)*100;

{ Plot in own window }
statsPer

jose '-)

[TonyM]

Jose,

Thanks for editing the link to give people direct access to the latest version of your indicator.
Following the link I noticed that, for the market time zones, you named the Middle East one "Saudi Arabia".
The main international financial center for the Middle East is in Dubai, which is in the United Arab Emirates, not in Saudi Arabia.
Obviously that makes no difference to the working of the indicator, but it sure makes a difference to the people who live there !
In the next (Mark 10) version, you might like to rename this market time zone as "Dubai" or "Middle East", just for the sake of "PC".
:-)

Thanks / Shukran,
Best wishes from Tony

[jose]

Hmm... that could involve a complete rewrite of the Lunar indicator code, involving the help of Equis' complete R&D team, and then I would have to charge for the version that took the world by storm... :)

Or I could just do it now... done.

Quote

Adjust FM signal to market's local Time Zone,
(generally add 1hr for Daylight Saving Time):

New Zealand: +12hrs
Australia: +10
Japan: +9
SE Asia: +8
India: +5.5
Dubai: +4
Europe: +1
UK & Portugal: 0
USA, NY: -5
Chicago: -6

I'm now waiting for mail from members whose markets I've left out... :huh:


jose '-)

[jose]

Talking about Dubai being a powerhouse financial centre, how about the building capital of the world?

Anyone for a condo on the 200th floor of the Burj Dubai? :)


jose '-)

[jose]

Below is an excellent application of the Lunar Indicator, where correlation of data to Lunar phases is around 80~90%:

 tides.png (99.6K)
Number of downloads: 22



jose '-)

[StorkBite]

Hey Jose,

You already know that I am a fan of this work. ;-) Wow... this is so interesting. I'd say about the most interesting indicator there is. Wish I knew how to get rich using it.

Is your plot simply to validate the accuracy of your lunar indicator with the tide table?

Also, since you are already plotting through the end of December 2007, will you please forward me your S&P data for the same time period? :lol:

[jose]

StorkBite said:

Also, since you are already plotting through the end of December 2007, will you please forward me your S&P data for the same time period? :lol:

If only the markets were this predictable, George... ;)

The idea was more or less to see the Lunar influences on our local tide. It turns out that the position of the moon (both at Full and New Moon) is a big factor on both the tide height (rallies) and their daily range (volatility). Other factors such as seasonal winds also play a big part in the seasonality (trends) of tide movements.

The markets have their (more or less) predictable components as well, such as seasonality. What puts the spanner in the works is the almost unpredictable day-to-day influences by a relatively few big players, such as with recent central bank meddlings.



jose '-)

[StorkBite]

Quote

What puts the spanner in the works is the almost unpredictable day-to-day influences by a relatively few big players, such as with recent central bank meddlings.

Perhaps this is a phenomenon that can be squelched with less reactive securities such as funds. For example, I usually try to hold on to funds for at least 3 months. If nothing else, it might provide a clue for entry and exit? Just a thought. I'd like to check this out more later.