When I have calculated for example that the critical value was at 10703 (the top was only 2 points above see http://www.elitetrader.com/vb/showthread.php?s=&threadid=24706&perpage=6&pagenumber=9), it didn't follow a Fib ratio on my model since the nearest is at 10684 (see below) although it was near so Fib ratios is NOT the true LAW it is only CONVERGENCE of something else and cannot be due to the "folklorists" who practice Elliottism. <IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=419918>
As you can see the trend was red and the expectancy for bottom in wave 5 was 10447. We can even refine with chart on future where the expectancy for bottom was 10431 (the low we made yesterday). Now beware it is not Elliott waves but a DEGRADED VERSION of my model under the form of waves (since the true fondamental model doesn't make any hypothesis on existence of waves) so I don't garantee that true Elliott have the same thing (I would be incapable in fact since I don't know much about their techniques except the basics 5 waves for impulse and 3 waves for correction ). But for sure my model generates Fib ratios although they haven't been introduced in the model adhoc. So Fib ratios are objectively present and my model cannot only confirm Sornette and Bouchaud but it knows the cause since it is a causal model which didn't take into account the datas of the market but was conceived in pure abstraction. <IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=419920>
<IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=419959> I affirm that it is not so much psychology or behavior of the crowd that can explain (although it plays a role but it is indirect) market's waves than something else and this paper from J. Doyne Farmer that denies that Crowd behavior plays such an important role as traditionally attributed by the common belief of behavorial school and traditional technical analysts is a step towards the truth. What I say if that there is a big confusion between cause and effect as I said already in past threads. This is not rare in history of science.
That is an old test. For example, some people have taken data at different time frames and used different compression schemes and see what the compression ratio was. You can then plot a graph of time vs compression and see some interesting results. I talked about this almost three years ago, and I learned of it almost ten years ago: http://www.elitetrader.com/vb/showthread.php?s=&postid=163484&highlight=compression#post163484 nitro
The material discussed by Chaitin has been known by different names and in a different context by the Theoretical Physics community for some time..... Most of it has not been published. If you delve into the details of "information theory" - which is a very broad term and really encompasses results from several fields of mathematics and physics, each of which apparently dont recognise that they are essentailly dealing with the same notions - you find the statements of Chaitin and others expressed in numerous places. To us its nothing new. The notion of information compression - across various spaces of various dimensions by the way - is a useful theoretical concept which IMHO leads to more fruitful studies. However, it has little relevance for most traders or trading businesses ....
Nitro and CalTrader, Thank you for extending the discussion of Chaitin. Both of your replies have given me much to think about. As I understand it Nitro is proposing that we can use compression factors as sort of a proxy for randomness or non randomness in the markets. This sounds like an excellent idea and one that could be directly applicable to trading or as a filter to certain trading strategies. I have yet to run the tests myself so I don't know its true effectiveness. CalTrader you mentioned that you do not think these concepts have much direct relevance to trading. As I know you are both very experienced researchers and traders I am curious as to the difference in opinion. Either of you care to comment further?
Its not a difference in opinion: the compression examples are interesting. My opinion is just that in the day to day business of trading there is very little that you can take away from these ideas with respect to direct application. That is, for most traders with a typical account size these notions have little relevance. However if you are trading very large amounts of money they start to be more important ....
Physics is a pure science - a hard science. The study of markets is a soft "science" - a social "science." Stand back for a moment and have a look at the bigger picture. How, exactly, do you propose to predict human behavior with physics, of all things? In my (perhaps narrow) view, your reach is far extending your grasp here. Although I did not do well in physics at school, I don't think that any amount of physics equations or theory is going to convert this apple into an orange. On the other hand, it may be great material for an SNL sketch featuring Mr. Spock.
Nitro and Caltrader, Thanks for extending the arguments on compression. I think the concept of signal to noise (S/N) is critical to the success of many strategies - esp. in detecting regime changes in the S/N ratio in the mkt. A crude way of approximating this is volatility - low vol environments favour trend followers, high vol environments will shake out the weak hands in the trend following community. S/N also affects other strategies. What sort of resources would you point to for a novice in these areas?