The code seems to be a pure technical analysis (charting) technique: " ...Take those reports you got there, and toss ‘em. Let me show you how I invest.” and loosely based in part on a pattern recognition algorithm: “The Same Algorithm the FBI Uses to Track Down Bad Guys”. No, really. Specifically the movement of serial killers. This reminded me of a recent article on Geographic Profiling  published in Science Daily:  The Buzz of The Chase. To quote the article:


GP relies on two things; the fact that most serial crimes happen close to the killer's home; and that the killer's home is surrounded by a 'buffer zone' - an area where the opportunity to commit a crime is comparatively low. These two parameters allow criminologists to create a geoprofile, which shows the areas where the killer is most likely to live. The more accurate the GP model – the more precise the geoprofile and the quicker the police can track down the killer.


Let's think how we might apply this to a stock chart. Most stocks move within predictable ranges and a buffer zone can be created between one or two standard deviations around the mean price. The majority of the stock prices (98%) will be within 2 standard deviations from the mean. Nothing new there - think Bollinger Bands or Linear Regression. The title of the newsletter also implies they're using some type of 1-2-3 strategy which is a fairly common and well-worn chart pattern.

Next is a mention of Leonardo Pisano, a 13th Century Italian Mathematician. Most people have never heard of Leonardo Pisano, so this is attention grabbing in a way. But most people have heard of Leonardo Fibonacci and his Fibonacci numbers, right? Well believe it or not, Pisano and Fibonacci are one and the same person!

"So, over the next year I studied everything I could find relating to Pisano. David thought he had the whole code. Using Pisano’s numbers, you could indeed tell exactly when to sell.

But as I continued my quest to build the 1-2-3 Code, I discovered that David’s understanding of Pisano’s numbers was incomplete. I uncovered an obscure manuscript Pisano had written… In fact, 6 Golden Numbers buried in his writings made the code even more powerfully accurate."

Technical analysts have been using Fibonacci numbers to figure out when to sell for years and years.  There's a really nice article over on swing-trade-stocks.com which shows how to combine 1-2-3 pattern retracements with Fibonacci.

Anyway, the blurb goes on to mention "5-3 predictive indicators" and shows a couple of charts, including one of Coca Cola with a trade from $1.36 to $2.93. Who remembers when KO traded that low?? I'm not sure what 5-3 predictive indicators are, but it could be Elliott Wave theory where a stock moves up in a 5 point zigzag pattern then down in a 3-point zigzag pattern.

I'm not convinced. Are you? Here's the blurb, read it and weep, and let us know what you think in the comments section below.