Chaos Theory – You Can Map Any Market To Reveal The Hidden Order

One of the interesting questions at IDFA was have I solved Chaos Theory? I am not sure that needs to be solved. The problem we have is confined to our mind and trying to translate concepts into words to facilitate expressing what we think is linear thought but is not. This is the Lorenz strange attractor that governs convection in liquids. This demonstrates that our weather appears to be unpredictable, yet this unpredictability is confined within parameters which is one hallmark of non-linearity.

Within this strange-attractor, trajectories appear to jump around, taking hair-pin turns, reversing and re-reversing without warning that to the novice may seem to be without rhyme or reason. Yet this unpredictability is constantly orbiting within the overall shape of the strange-attractor that is actually the universe of this system mapping out all the possible states the system can be in at any given moment. Each point on this strange-attractor is the state of the entire system at one given moment.

If you are in Western basic culture, you are taught the alphabet. Children can recite the alphabet with little problem when they sing it. Teachers for years taught the alphabet by creating a song. If the police pull you over to test if you had too much to drink, one test they will conduct is to have you recite the alphabet without singing the song. We have learned the sequence of the alphabet attaching it to the sensory input of sound.

Now recite the alphabet backwards without singing. What happens? You suddenly have to think hard. Most people cannot even complete that task in a single go. Some will perhaps try to visualize the alphabet as it appeared in some printed form and read it backwards from that image in their mind if they can visualize it.

This exercise demonstrates rather important points. First, in many respects we learn certain things in a linear fashion and store that sequence in a part of our memory reserved for memorization. Many of us will play the song in our head. However, try to recite the sequence without the jingle. This suddenly becomes a conscious mental exercise involving two mental tasks – memorization and sound.