Hypo, Many thanks for pointing us to an interesting direction below: Institute of Behavioral Finance http://www.psychologyandmarkets.org/index.html Behavioural Finance http://introduction.behaviouralfinance.net/ What is behavioral finance? http://www.acsu.buffalo.edu/~kk52/welcome_to_my_behavior_finance_p.htm Behavioral Finance http://www.nber.org/reporter/summer05/stein.html Beyond Greed and Fear: Finance and the Psychology of Investing (Hardcover) http://www.amazon.com/gp/product/0875848729/102-3846603-1642532?v=glance&n=283155&v=glance
I am humbled by your erudition. But that's not quite what I had in mind. I am referring to things like deliberate manipulations for the purpose of convincing traders that the positions they hold are wrong. So there, I said it, I am paranoid.
Hypo my friend, It seems you would have already got good answers to your own questions. Please fell free to share your secrets with us openly. TIA.
Found some interesting papers below: Trading in Phantom Markets: Price Manipulation in an Emerging Stock Market http://www.bu.edu/econ/ied/seminars/pdf/Khwaja11-3-03.pdf Perhaps try Fig 6 on p.39 Types of Manipulation. http://www.ksg.harvard.edu/hepg/Papers/Shilts 01-25-02.pdf Market Makersâ Methods of Stock Manipulation http://www.imanet.org/ima/view.asp?TRACKID=&CID=1092&DID=1832
That would not invalidate an underpinning mathematical theory. For example, one of the pillars of modern Physics is the covariance of theories under certain group actions. But what may be to particular to a given model, such as initial and boundary conditions, usually breaks the symmetry of the theory. The symmetry group of the observed data is therefore usually MUCH SMALLER than the covariance group of the theory. And that is in Physics, let alone Phynance!! Even if you were correct that the markets are manipulated in such a way as to screw the most number of participants, the "screw as many market participants as possible" [from now on known as SAMMPAP] may be a covariant theory to a well known mathematical theory of markets, for example the sited one above that markets are multifractals (which is very likely to be correct at least as an approximation or pertubation of the basic model - i.e., Log-Levy distributions and their relation to multi-fractals, etc.) The problem is not the mathematics, it is that the evolution equations or even the theory governing the dynamics are mostly unknown in the financial markets/economics - all we can see is noisy data. If we understood exactly how SAMMPAP tries to screw over most people and could write it down as some sort of statistical equation and it's governed dynamics, we would be able to tell many things with a great deal of statistical accurary (in the Log-Levy sense.) BTW, There is no general analytic solution for the form of p(x) for Levy Distributions. There are, however three special cases which can be analytically expressed as can be seen by inspection of it's characteristic function. * For α = 2 the distribution reduces to a Gaussian distribution with variance σ2 = 2c2 and mean μ and the skewness parameter β has no effect. * For α = 1 and β = 0 the distribution reduces to a Cauchy distribution with scale parameter c and shift parameter μ. * For α = 1 / 2 and β = 1 the distribution reduces to a Lévy distribution with scale parameter c and shift parameter μ. Other special cases are: * In the limit as c approaches zero or as α approaches zero the distribution will approach a Dirac delta function δ(x − μ. http://en.wikipedia.org/wiki/Levy_skew_alpha-stable_distribution I have been able with some success able to identify [some of the time] when the markets are in "α = 2" above and take advantage of it. I have been able to do this by noticing a "symmetry group of the observed data," but it is really hilarious, it even "knows" how to screw those that know they are getting screwed!!!!!! LMAO. The screwing is fractal too! . I am working on the the other three cases... nitro
Many times I would think playing pullbacks could be basically a better and safer strategy in terms of risk/reward expecatations, after considering probable manipulations, if any. Just my 2 cents.
lol - taken from amazon book description: As he did for the physical world in his classic The Fractal Geometry of Nature, Mandelbrot here uses fractal geometry to propose a new, more accurate way of describing market behavior. The complex gyrations of IBM's stock price and the dollar-euro exchange rate can now be reduced to straightforward formulae that yield a far better model of how risky they are. With his fractal tools, Mandelbrot has gotten to the bottom of how financial markets really work, and in doing so, he describes the volatile, dangerous (and strangely beautiful) properties that financial experts have never before accounted for. The result is no less than the foundation for a new science of finance. well my friends, i can sum this book up as follows: 300 odd pages of typical useless phd arse dribble. this book is nothing more than some academic trying to create some self-worth for himself by trying to over complicate the very simple. markets are driven by ORDERS not mathematical formula. taleb, neiderhoffer, ltcm, and probably mandelbrot have all gone bust at some stage trying to pretend otherwise while assuming some level of intellectual superiority. bwahahahaha!!!
Q At a broad level, the idea that we need to track the sum of investor behaviour and intentions has sprung the school of thought known as behaviour finance. This field seeks to examine how and why investor "herding" takes place, how to anticipate it and finally how to anticipate reversion to fundamental mean. Most narrowly, models have been developed to track the sum of client orders and transactions. ... --- "Currency Strategy" by Callum Henderson UQ
Plain quackery. Has nothing to do with science. The fellow trying to sell this to the public is a run of the mill journalist at the Wall Street Journal. Mis-using Einstein to push Mandelbrot's stuff as science? Einstein shew the scientific correctness of his general theory of relativity by predicting the Mercury solar transit anomaly. (Other experiments have followed since the early 1900's). What proof of predictive power as required of 'scientific knowledge' does exist for Mandelbrot's gismo's as applied to financial markets? NONE. Only some talk by a WSJ quack. Has NOTHING to do with SCIENCE.
FredBloggs awesome post, and I even own the book myself, couldnt have said it better. I was hoping for a dynamic position sizing algoritm or stop method, fractal style. No such thing here.