Technology
Economics
Science
Finance
Financial Markets
Technical Analysis
Chaos Theory
Market Mechanics
Logistics Map
Participant Prediction
ROOT Algorithm
MarketMaker
The Financial Markets are neither purely Chaotic nor purely Probabilistic, rather, they are intermittent (Non-Continuous) and are constantly shifting between the two.
Let’s discuss more about Chaos Theory and why it can be useful to analyze Market Mechanics in this manner:
Let’s discuss more about Chaos Theory and why it can be useful to analyze Market Mechanics in this manner:
The intermittence of the Financial Markets can give periods of time when price is Chaotic, while other times Stochastic. When Stochastic, traditional Technical Analysis can accomplish wonders. However, when Chaotic, no indicator will provide anything of value.
When you look at the Logistics Map below, consider each point to be a prediction made by a participant - where it all begins with the decision of a single Actor. This “Actor” can either be considered as the ROOT Algorithm or the Market-Maker acting on information provided by it.
Within Chaos emerges the “Golden Ratio”. You can understand this by analyzing Human nature:
If given a blank piece of paper, Humans will split their answers between ratios of 62% and 38% on the premise of the paper being either Black or White in color.
If given a blank piece of paper, Humans will split their answers between ratios of 62% and 38% on the premise of the paper being either Black or White in color.
This same Phenomenon is constantly occurring until uncertainty reaches its limit and a splitting point is reached - Feigenbaum tells us exactly when this occurs. Whenever the split occurs, sentiment resets and the dance around the Golden Ratio begins once again.
When Market-Makers act on the information provided by the ROOT Algorithm of the Network, they facilitate Price-Discovery in new participants - but there’s a Pyramid structure to this system.
The first participants are the Supplemental Liquidity Providers, as they are incentivized to add Liquidity onto the Exchanges for the basic & professional participants. As already discussed, SLPs account for upwards of 80% Total Trading Volumes in the market.
The method used to acquire this information by the Market-Makers is through Exploratory Positioning, where information is encoded in their future Orders at pre-determined levels. This, I believe in Theory, to be caused by what’s called the “OGY Algorithm” in Chaos Control.
In the Logistics Map, you’ll find periods of Clarity - this is Order within Chaos. As Chaos evolves, at one point, everything becomes Stochastic before diverging once more.
Consider this the moment when the OGY Algorithm becomes in-sync with the sentiment of Participants.
Consider this the moment when the OGY Algorithm becomes in-sync with the sentiment of Participants.
So, you have the ROOT Algorithm which provides the basis of the Mandelbrot Set (Fractality) in confluence with the OGY Algorithm (Pre-Defined Sentiment) which provides the Architecture of the system.
ROOT + Architecture = Nonlinear Control
ROOT + Architecture = Nonlinear Control
In terms of the “Architecture” of the System, think of it like:
Whichever Wood the Architect chooses, the blueprint remains unchanged. The height of the building, the distance from one end to another, the Geometry, etc… Regardless, the end result is something entirely Unique.
Whichever Wood the Architect chooses, the blueprint remains unchanged. The height of the building, the distance from one end to another, the Geometry, etc… Regardless, the end result is something entirely Unique.
Lastly, let’s discuss Turbulence & Velocity. In Physics, Velocity is the rate and direction of change in a position of an object - aka a Vector Quantity. To define it, both Magnitude and Direction are required.
If Direction is pre-determined, what about Magnitude?
If Direction is pre-determined, what about Magnitude?
I’ve been studying the impacts of Interbank Volume, and recently, I’ve come to the conclusion that streams of Quotes or Orders within an Orderbook can be described as something similar to Flow.
Turbulence is the highly unstable state of a system, and when Orders become too heavy too quickly, dramatic changes in price will occur. This can be considered on the order of a Reversal, where orders contrarian to sentiment overtake Equilibria in the OGY Algorithm.
Ultimately, you have a mostly Chaotic system, yet, not random. Within this system, participants are making predictions that ultimately account for Magnitude, whereas Direction is pre-determined through the OGY Algorithm. SLPs analyze and act on Market-Makers using this Algorithm.
The idea of market shifting in determinism is controversial, but consider what you’ve learned from Michael Huddleston:
Algorithms manipulate “Low-Intelligence Momentum Traders” into buying expensive and selling cheap.
There is now no question as to why that occurs - incredible.
Algorithms manipulate “Low-Intelligence Momentum Traders” into buying expensive and selling cheap.
There is now no question as to why that occurs - incredible.
I want to conclude this with a note:
This is all Theory - it’s a Theory I’ve been working on for some time now, and by no-means is it complete. Things will change, and they will improve.
Regardless, we have much more to brainstorm about.
Fun Resource: youtu.be
This is all Theory - it’s a Theory I’ve been working on for some time now, and by no-means is it complete. Things will change, and they will improve.
Regardless, we have much more to brainstorm about.
Fun Resource: youtu.be
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