Physics and Trading? Hmm…….

Discussion in 'Trading' started by FutTrd, Sep 18, 2006.

  1. FutTrd

    FutTrd

    Friend of mine is physicist by education and he is getting into trading.
    He has had a revelation and he shared it with me. No not the religious kind.

    The trading kind.

    Okay, you are all familiar with water running down the windshield of your car.

    Try to recall seeing last time a single stream of water running down your windshield.

    Although you know that stream will go down you don’t know exact path it will take.

    As the stream goes down it curves slightly differently every time.

    Now he says that, stock charts are exactly like streaming fluids over uneven surface.
    Seemingly random and yes with a degree of randomness but also with a degree of predictability.

    All one needs to do is keep measuring deviation of fluid from the norm, the greater deviation the greater the probability that fluid when and if it snaps back into norm
    will result in fluid being very predictable for a short while. Until deviations start again the cycle.

    I don’t fully yet understand it myself, I am not a math whiz.

    Basically this is sort of like “Control of Chaos by Capture and Release”
    and “Fluid Dynamics”.

    I find it interesting how inspiration can come from all kinds of natural rules.
     
  2. Interesting thinking.

    I have a related view ...
    the messier the market (on whatever timeframe) the more promising the move that will finally emerge from the mess

    messy = more chaotic = harder to extract money

    How does he explain that the water will turn around and go back uphill?
     
  3. This is Hurst cycle theory - price has random movement within predictable boundaries.
     
  4. FutTrd

    FutTrd

    I guess its all just reinventing the wheel

    people invent the wheel and keep it secret, and some give it away

    yet still internet is so large that some people just reinvent the same thing rather then spend months trying to find it on the net.

    whatever you think of, there are people out there who perhaps are doing the same thing, even if it is small number
     
  5. I'd wager there is nothing your friend can think of about the market, that the legions of Ph.D. quants currently banging on this market have not thought of.

    It takes more than that to be successful. It's all about execution, position size, experience and working the psychology of other traders.

    That's my take, anyway. I'm often wrong.

    Good trading to all.

    :cool:
     
  6. This is straight reversion to the mean.

    The window is not an uneven surface. What is there is small stationary droplets of water affecting the flow.

    The patterns going away from the centerline of the windshield all exhibit a favorable drift due to wind over riding the gravitational forces.

    The precipitation level is the greatest factor involved; you may notice this phenomena has two extreme limits of occurance both set by rainfall rates.

    You do not understand physics and your friend doesn't know how to apply physics to the market.
     
  7. I think that pure sciences such as physics have limited application to the markets. Crowds may often operate as a group, but the individuals that form them are not quite the mindless particles* that they would probably have to be in order that the laws of physics could be used to describe them with full confidence. That's my guess, anyway.

    * Of course, there are some exceptions.:D
     
  8. Nothing special with that revelation. Have your friend read up on bollinger bands or keltner channels.

    He's about 5% of the way to having a tradeable strategy.
     
  9. piezoe

    piezoe

    It might be of interest to know that financial institutions are one of the main sources of jobs for newly minted Ph.D. Physicists.
     
  10. ozzy

    ozzy

    That's because no one else will hire them.

    As much as I loved physics when I was younger, it's a mistake to pursue this subject in university.
     
    #10     Sep 18, 2006