Does Butterfly Effect apply to trading?

Discussion in 'Trading' started by NanoTick, Dec 11, 2006.

  1. That is to ask, because of the chaotic nature of market, could a small event such as "buy 500 AAPL" result in a boom or bust next year?
  2. leeiou

    leeiou Guest

    Thats a fantastatic question. Far too intellectual for me to do it justice. I will keep an eye on it tho in the hope some of the clever members start posting. I might learn stuff!!!!!
  3. wow, post of the yr.
  4. bg514


    The butterfly effect is overrated. The universe strives to avoid paradox. Only macro-events can have the effect you describe, ie: housing boom/bust, world trade center, etc.
    Also, keep in mind that the market tends to lag the economy. A recession could be well underway while the DJIA is still hitting new highs!
  5. Daal


    regardless I will shutdown my air conditioning just in case
  6. Uh... markets price in anticipations of future growth... it's the other way around... GENERALLY, stock prices will fall ~ six months before a recession.

    Also, butteryfly effect towards trading... maybe it applies on the massive scale of "sell 500 shares AAPL" causes the entire tech sector to drop, but what about a more minor scale? What about on a stock that trades 500,000 shares daily, does taking out a thin price level with 100 shares drastically alter the closing price of that stock that day under certain circumstances?
  7. piezoe


    The "bunny" wrote:
    Uh... markets price in anticipations of future growth... it's the other way around... GENERALLY, stock prices will fall ~ six months before a recession.

    Having been around the block a few times i would have to agree with the bunny. The stock market is, generally, the most reliable leading indicator of the economy. And there is an "acceleration effect." The reason for this is that when the market turns down people whose retirement accounts and life savings are tied up in the market feel less wealthy and began playing their cards closer to the chest, so to speak. Hence the rate of economic slowdown tends to be accelerated.

    The present economic signposts are pointing South. But the economy is just now making a peak, a little past it actually. So it is too soon yet for the expected economic downturn to be reflected in the market. Rest assured the market will tell us when a recession is on the way.
  8. lindq


    It isn't overrated at all.

    Where and how do macro events begin? They don't simply spring from nowhere.

    Trace their source. They begin with a very small impulse.

    Look at the origin of any important event or movement throughout history, whether economic or political, and you'll find the single thought of one person, sometimes completely accidental, often initiated by a sight or sound so small that anyone else would fail to notice.
  9. MrPaul


    :confused: :confused: :confused:
  10. man


    i heard that: wrong answers are corrected over time. it is wrong
    questions that make most prolonged trouble. the issue with the
    butterfly effect is that it does not make a real difference for anyone
    and it certainly does not in trading. simply because there are
    trillions of butterfly wing movements and by definition it is the
    chaotic nature that makes some result in storms, without any
    hint which ones it will be. and while each butterfly wing clap CAN
    result in a storm thousand miles away, it most likely WILL NOT.

    so it is really completely useless to be aware of all these butterflies,
    it might be intellectually challenging but for trading purposes it
    most likely leads you in a completely unproductive direction ...
    IMHO most likely directly opposite the way to trading success.

    do not look for butterflies, look for elephants. even better:
    hurricanes ... so read about butterflies, but watch the weather
    outside, if you want to go swimming.
    #10     Dec 12, 2006