It was mentioned by others here earlier in this thread. The book "SYNC" really helps to understand it better. http://www.amazon.com/Sync-Order-Em...7214/ref=sr_1_1?ie=UTF8&qid=1316098244&sr=8-1
It is so refreshing to see a cohesive and intelligent conversation about this topic happening on Elite Trader without the resident flamers showing up. Thanks for helping others see what some of the rest of us see in our charts, data and markets.
It is my absolute pleasure to share my thoughts here. I would be delighted if my humble efforts could ignite an interest in this subject even in a very few people. One of my goals in life is education. I would be so pleased if I could make even smallest contribution to this cause and help in any way to make somebody interested in math psychology and philosophy. Cheers, MAESTRO
"was an American mathematician and meteorologist, and a pioneer of chaos theory. He discovered the strange attractor notion and coined the term butterfly effect".
Is there any research or theories on the adoption rate of jumping on to the pattern? Or, the rate at which the flock wholly turns left, from the earliest left turners to the last few? Surely, they don't all do it exactly at the same time, there is probably some distribution curve to describe it. Example, birds are too fast for me, but I saw on Planet Earth, in E Africa they have a trick of 3-4 men walking calmly straight towards a pride of lions after they catch something. First, one lion gets spooked and runs away, then 2, then a bunch, then a declining amount til the last one runs away. I don't know, but when I watch tick data, it looks like logit curves but flipped around the x and y axes. Maybe this reflects an adoption rate, or a CDF of the adoption rate distribution curve.
MAESTRO, Since you mentioned math psychology and philosophy, can I trouble you with this? "Third time is a charm." How that works? Here is the basic pattern. In a non-trending market you see a lot of two-legged moves. And I don't quite understand why only two. The second leg is a "test" of the previous extreme. And, if the price fails to go beyond that level it will most likely reverse. There will be a Lower High, Higher Low and that's how a head-and-shoulders pattern is created. It seems to me that the First move (Leg) just happens - spontaneously, confluence of random forces in place strong enough to make it happen. The Second Leg, many pile in recognizing the direction. The Third time is indeed the test. --- Thank you for recomending the "SYNC" book. It would be great If you find time to this post. Thank you.
I try not to take a contrary role without delving further into the reading you and another brilliant poster have provided. I'd only suggest that -- so far in this thread -- it's only been demonstrated that randomness, according to your initial definition, has utility in building profitable models for identifying certain stable patterns. Much argumentative work would have to go into leveraging that utility to explain all behavior.
Also just to reiterate this stuff remains incredibly fascinating to me, and the behavior you've described makes sense in an elegant way. I'm grateful you've broken your reasoning down to offer other fruitful ways of looking at this subject.
At the risk of disappointing you I think that your example (hypothesis) is too literal. I would stay away from the "reasoning" behind the chart patterns; it's a bit of a stretch to me.
Agree. It wasn't my intention to suggest that everything could be explained using randomness. I was merely trying to state that randomness is an objective quality of nature, and not a subjective utility used for modeling the reality. And, of course, it is just my opinion. I do not have a complete proof of this hypothesis, however, accepting this premise helped me a lot and I was hoping it could help others.