The move in the price of silver that began in early 2010 is the largest move of the last 20 years. According to the chart attached, the excursion is complete, and we have returned to the status quo that has been generally observed since 1996.
It really looked for awhile that the system was defining a new region of stability. But we have returned to the old one.
It really looked for awhile that the system was defining a new region of stability. But we have returned to the old one.
Complex systems wells from simple-simple rules in nature. (Pls see this video where mysterious Fibonacci series, golden ratio and mighty spirals are all explained with a naive rule: "plants need sun light" http://www.youtube.com/watch?v=ahXIMUkSXX0&list=TL0jyf9OFttp8)
ReplyDeleteSo should be in financial markets I guess: Simple-simple rules should be enough to explain emerging complex patterns. BUT in order to find out those rules one should put himself in place of an plant/trader. What is the simple rule for a trader: If the price is higher than where I bought my shares I feel safe and reckless towards the risks. If the price is lower than where I made my purchase then vice versa. So any rule I need to test has to be "referencing the previous prices for some period". One other idea can be the speed of the price when moving away from my cost of shares. (i.e. Rate Of Change...) These two can explain a traders reflexes towards his positions...Will my account survive and prosper or not... that is the simple-naive question behind the chaotic markets...
Having said all of that I will come to a solid point. When I look at your phase space studies, I see mere price data is being used. That is too simplistic. In my first ever effort of creating a phase space I used Price Rate of Changes... Yet the resulting pictures resembled more of a complex system...
Anyway I would like to discuss all those details with you if you wish too... Well, the first thing I have to do is to thank you, but it is never late for that : - )
Thank you for these great posts,
akillipara@gmail.com
Thank you for your reply. I have addressed one issue with trader's preferences in this post http://www.worldcomplex.blogspot.ca/2013/07/crowd-sourcing-mass-psychology-and.html
ReplyDeleteWhen I reconstruct phase space portraits using the time-delay, which I have primarily used in the gold-silver ratio or Case-Shiller index posts, the resulting plot is topologically equivalent to a plot of price vs its rate of change. I had a post way back that discusses this point http://www.worldcomplex.blogspot.ca/2010/08/how-life-imitates-stock-market-part-4.html
No problem for discussion. Write in any time.
Having read my first comment, I see that it was not clear enough. So allow me to turn to the basics: Complexity wells from feedback processes. As in Mandelbrot set (Zn <=> (Zn+1)2 + c) the complexity arouse by iteration of the feedback (feedback loop). In the video that I shared in my previous comment the narrator simply iterates a basic rule of survival instinct. And there comes the amazing spirals, Fibonacci set...etc. We have to focus on the very same "simple thinking" approach when creating phase spaces out of market data. BUT that "simple thinking" should embrace the roots of complexity and hence it should contain "iteration", "relativity"...etc. <> Some better ingredients should be used... Because traders does not take decisions simply by looking at the past price action. They look at its RELATIVE position/speed...etc. Therefore, price and its ROC is not sufficient enough to portrait the phase space...
ReplyDeleteMY initial-BASIC IDEAS regarding those new ingredients:
A trader's decision is based on many things, but we can suggest some simple rules which govern that decision taking:
>> TREND: The relative direction of the current price
(e.g. where it stands within a range of past prices)
(like the children in this video, traders collect short term information from the neighboring data and apply a simple rule based on that information (short term memory): http://www.youtube.com/watch?v=x_9FEX__yTo&feature=c4-overview-vl&list=PLC4BAE86A94413B42)
>> MOMENTUM: The relative speed of the current price
(e.g. where its ROC stands within a range of past prices)
Let me cut it short here...
I would like to hear about your comments on my thoughts. Have you experienced any sort of phase space studies with "trend and momentum" data?
All my Best,
Erdem
Ohhh God... I made it : - )
ReplyDeletePlease check the attached image and compare it with the phase space portrait of the "dust flux from Vostok" (on top of this blog's home page). The immediate similarity is fascinating. Yet I have no idea yet how to benefit from this : - )
The image is called "chaos of the naive trader"
http://imageshack.us/photo/my-images/191/kh9a.jpg/
That's good. You have price plotted against the change in price. You could eliminate the slant by using the current rate of change rather than the trailing rate of change.
DeleteI have noticed most technical traders using trailing indices. Also, if you average your rate of change over a few days it might look a little less noisy.
Over time the market may show a preference for one or more price ranges. Sometimes it will oscillate from one price range to another. Unfortunately, timing is not predictable.
ReplyDeleteActually, I didn't use the ROC of price data. I simply put myself in place of a plant which merely wants to survive in the wild market environment...
DeleteSo I put together the simplest linear-minded behavior that a plant would follow. Then I created the phase space for the results of that behavior...
All those required additional analysis software rather than excel but I guess an average user of excel can create the required macros/rules within excel...
The ultimate question is: what the hell is that phase space tell me about the future of the market? What is your experience with the Vostok core for example? Can you recommend some good reads on that subject?
Is there anyone else than us following the conversation with inspiring ideas?
How can you profit from it? Well, if I could do that on a regular basis, I wouldn't be writing this blog.
DeleteSometimes it seems to work. Then sometimes it really, really, really looks like it's going to work, only to not work at the worst moment (right after a trade). Case in point will be the next silver post that I do after I'm done travelling over the weekend.