Butterfly Effect
If you know about the ZUP patterns, sorry this is not that thing. This butterfly looking abstract graffiti type thing is what a “Butterfly effect” would look like in the “Chaos Theory“
So what is Chaos Theory and how that can help traders gain that extra yard on any floating market? Well I’m not an expert on it so I can’t tell you.
This thing “should” actually used to forecast dynamic patterns which doesn’t looks like following any pattern at all. In currency market, we always see price moving north and south without any reason. Good and positive CPI data backfires and price moves 100 pips without any fast market condition or fundamental reason.
Well, the currency market exists because nobody can predict the price accurately at anytime. If anybody could actually “crack” it then the market will not exist anymore. Anyone who knows why and how price moves will know how mass psychology and game theory can work in this dynamic market condition.
All Sellers = No Buyers = Supply is absolute = Demand is absolute in negative = Price is null and fall
What will happen? Price should fall right? According to that Supply and Demand chart you study on Microeconomics?
But in real market situation there are participants in the market who are invisible. These are the people who were waiting for the price to fall to a certain amount before they could buy it back. The sideline players. So the moment these players get in at a time where price has lost certain value we see reversal.
So how that is relevant to chaos theory? I don’t know. I’m more than interested to know if the cycles in price movement actually follow any certain pattern? No I’m not interested in Elliot Wave theory that thing has rules 5 cycles and 3 downside ones blah blah…
I’m talking about cycles that we don’t see at all. Which appears random but can we apply chaos theory in mass psychology to forecast these cycles? Currency price does not always reflect the broad economic trends, at least in short term (not 5 minute chart I’m talking about even on monthly) because price is just a psychological value not an economical value.
This is why to understand price a trader require to know more about mass psychology than pure economics. An economist can tell you tomorrow what happened yesterday, a trader has to tell what will happen tomorrow, today.
I’m going to do some research on chaos theory after going back to campus this February. Too bad that I can not access BlackWell from my laptop. They require a computer from the library to login or something. Anyway Google should provide enough for now.
I’ll update on this subject later on.
Filed under: Random Thoughts
