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August 12, 2009

Hindsight Bias
by David Nichols

One of the most difficult things about navigating financial markets -- especially a volatile market like gold -- is determining in real-time what is important information, and what is merely noise.

The truth is there are precious few market traits that have actual predictive value. Almost everybody has experience with a meticulously researched and entirely logical fundamental investment idea that ends up causing massive losses. And the vast majority of technical indicators are only good forensically, often looking spectacular in hind-sight but offering very little guidance when it's time to make an actual decision in a market.

This "hindsight bias" is a very dangerous trap in financial markets, as in retrospect events can appear to be more predictable than they really are. Since many don't understand this idea, they waste years in fruitless study and practice of strategies that were never going to work in the first place.

But it's not completely hopeless. There are many things to be uncovered about markets that offer real insight about what is likely to come next. In my opinion there is still a wide-open frontier for research into the way markets actually work.

Recently in the Fractal Gold Report I have introduced a new way of looking at the specific timing of market moves. I had high hopes for this while I was working feverishly to uncover and characterize this underlying timing cycle in gold -- as the forensic evidence from past price action was nothing short of spectacular -- but of course the major test is seeing how it works in real-time.

The latest real-time test came off even better than I was expecting, as gold turned sharply back up on the exact day that I had identified weeks ahead of time.

The good news on this timing cycle is it's very simple to understand and to use, which in my opinion is another important test of anything market-related -- it has to be very simple with few "moving parts" or it is destined to fail miserably at the worst possible moment.

We're still offering a 30-day free trial to the Fractal Gold Report -- as well as a daily report on equity markets -- that will give you immediate access to a Special Report on this amazingly accurate timing cycle in gold.

There is also another recent Special Report on what to expect on the big pattern in gold all the way out into 2011.

Another important date for the timing cycle in gold is being hit this week, so it's a perfect time to learn more about how it all fits together. As well, I encourage new subscribers to look back in the daily archives and see how this turning point played out in early July.

David Nichols
email: editorial@fractalgoldreport.com
Fractal Gold Report

David Nichols publishes the Fractal Gold Report, a daily report covering the gold market using proprietary techniques that go beyond technical and fundamental analysis. The Fractal Gold Report is available by subscription here. Fractal Gold Report Disclosure.

David Nichols is a graduate of Yale University and a leader in the emerging field of fractal market analysis. This pioneering analytical approach studies the markets as chaotic, non-linear systems, addressing the predictability in financial markets. Fractal market analysis discovers the order hidden within the seemingly random chaos of the markets.

David is the editor of the Fractal Market Report and the Fractal Gold Report, daily subscription newsletters written in an easy-to-understand style that cover the markets using his proprietary techniques that go beyond technical and fundamental analysis.

Copyright © 2008-2009 Fractal Gold Report. All Rights Reserved.

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