My new chaos findings implemented in forex trading

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dchappy
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Postby dchappy » Fri Jul 08, 2011 12:22 am

Paul , How does Elliott Wave theory relate to Chaos theory ,,

In other words are they dependant upon each other ?

Thank You

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Paul&Paul
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the Elliott wave theory and the chaos theory

Postby Paul&Paul » Fri Jul 08, 2011 9:19 am

To dchappy,

They are related in such a sense that they deal with the same market(s) but mathematically they are different things and there is no transform of one into the other by means of some magical formula.
The Elliott wave theory is based on a model where variables are raw prices.
The chaos theory is based on a model where variables are not raw prices.

As a result we have two different mathematical spaces (two different worlds).
From the point of view of raw prices the Elliott theory is correct and heuristically well evidenced.

You might ask why then we see fractals in both those spaces. Well, the Elliott wave theory shows fractals in their static form (some kind of frozen picture).
The chaos theory reveals that fractal forms evolve over time and there is a special order ruling the process. And what is most interesting, chaos reveals
places where new fractals form, and they - the smallest possible objects - are called triggers. Those triggers are not waves of any form in the Elliott wave theory.

So the main difference is in seeing the dynamics. With the Elliott wave theory we get beautiful pictures (patterns) but little if nothing can be said about what is going on inside.

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NZDUSD

Postby Paul&Paul » Fri Jul 08, 2011 10:08 am

NZDUSD
Best buy, best sell and the equilibrium line.
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Paul&Paul
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CHFPLN expanded to 14.208

Postby Paul&Paul » Fri Jul 08, 2011 4:33 pm

Anything said about CHFPLN had "the wonderful madness of self-fulfilling prophecy".

CHFPLN has expanded to 14.208 times the trigger up in a catastrophic vision of tomorrow after today's release of a paultry increase of US non-farm payrolls in June.

Do things look better than the figures from across the Atlantic? Why has PLN taken the beating for Uncle Slam?

From many points of view the currency market cannot be fully trusted that it knows what it is doing. In other words the stock markets are the most difficult markets to manipulate. It will be evidenced when comparisons are made of the behavior of different financial systems prior to the data release and immediately after.

Meantime let us make a historical note that 3.3142 was what I was looking for in the case of CHFPLN. The pair soared there, I do not know why, but it did.

Paul&Paul
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CHFPLN expanded to 14.208

Postby Paul&Paul » Fri Jul 08, 2011 4:34 pm

Anything said about CHFPLN had "the wonderful madness of self-fulfilling prophecy".

CHFPLN has expanded to 14.208 times the trigger up in a catastrophic vision of tomorrow after today's release of a paultry increase of US non-farm payrolls in June.

Do things look better than the figures from across the Atlantic? Why has PLN taken the beating for Uncle Slam?

From many points of view the currency market cannot be fully trusted that it knows what it is doing. In other words the stock markets are the most difficult markets to manipulate. It will be evidenced when comparisons are made of the behavior of different financial systems prior to the data release and immediately after.

Meantime let us make a historical note that 3.3142 was what I was looking for in the case of CHFPLN. The pair soared there, I do not know why, but it did.
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CHFPLN expanded to 14.208

Postby Paul&Paul » Fri Jul 08, 2011 4:35 pm

Anything said about CHFPLN had "the wonderful madness of self-fulfilling prophecy".

CHFPLN has expanded to 14.208 times the trigger up in a catastrophic vision of tomorrow after today's release of a paultry increase of US non-farm payrolls in June.

Do things look better than the figures from across the Atlantic? Why has PLN taken the beating for Uncle Slam?

From many points of view the currency market cannot be fully trusted that it knows what it is doing. In other words the stock markets are the most difficult markets to manipulate. It will be evidenced when comparisons are made of the behavior of different financial systems prior to the data release and immediately after.

Meantime let us make a historical note that 3.3142 was what I was looking for in the case of CHFPLN. The pair soared there, I do not know why, but it did.
Attachments
chfpln8.07.gif
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Paul&Paul
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Striking similarities: EURJPY & EURGBP

Postby Paul&Paul » Fri Jul 08, 2011 7:17 pm

Striking similarities: EURJPY & EURGBP

Looking at the action near the equilibrium line of each pair I cannot resist saying there is something very intriguing in the behavior of the system. The final trigger down occurred well before the US open.

EURJPY reacted both to the equilibrium line as well as to the best buy level.
Then it plunged quickly more than to 4.669 already. Now we have a new level for best sell and no new best buy.

For EURGBP we have new best sell and best buy levels. And the new equilibrium comes at 8939.
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The prediction of the behavior of a system

Postby Paul&Paul » Sat Jul 09, 2011 5:46 am

The prediction of the behavior of a system when its evolution law is known, is a problem with an obvious interest in many fields of scientific research.
I would point to the understanding of the relaxation properties rather than the definition of the 'predictability time'. What is the mean response of a system to an external perturbation and the features of its un-perturbed state?
It needs to be stressed that fractal expansions are local and global phenomena
while a perturbation is a local phenomenon.

The classical example of an external perturbation is the release of important
economic data like the US non-farm payrolls (vide Friday July 8).

For some it is an important piece of information strogly affecting trading markets. However, from the point of view of a chaotic system, the data release
is nothing more than an external perturbation. In this case it is relevant to understand how the difference between the state of the market after the news and the hypothetical un-perturbed state without the 'eruption' evolves in time. In practice one wants to understand how a system absorbs such a perturbation, just looking at the statistical features or some other features
of price-making in the unperturbed regime.

Recall that a chaotic system's intrinsic property is the inner-built memory which stays in the system as long as it is needed and this memory is not disturbed or affected. A perturbation can create a local ripple in the dynamics of a system but it cannot cancel any of the existing components of the memory. All turbulences, UPOs and triggers stay where there were a minute ago, a month ago, a year ago.

A perturbation such as the one related to the release of the US non-farm payrolls can produce turbulences and triggers of its own. The question is
did we observe new triggers formed immediately after the news, and were there any markets resistant to the perturbation. It does not suffice to state that the prices moved dramatically this way or the other. The problem is to state was it something new for the global system or nothing new.

It will be interesting to analyze some currency markets and compare them with the stock markets as there may be some fundamental differences.

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EURUSD almost un-perturbed

Postby Paul&Paul » Sat Jul 09, 2011 12:36 pm

EURUSD almost un-perturbed. Before Friday's non-farm payrolls EURUSD was in a bearish mode following a huge trigger down (47 pips). Immediately after the release of the US data no new trigger occurred. In other words, taking into consideration the map of M30 and chaotic behavior EURUSD remained un-perturbed. Remember that this is the most important major among majors.
This is a pretty 'unexpected' outcome, and must be irritating the most those traders who blindly believe that trading fundamentals makes sense. Well, it does, provided the system is case-sensitive. But how would they know that it is or it will be?

To crown all, EURUSD completed two important fractal expansions. One at
1.4224 equal to 5.8664 of a trigger down
the other at
1.4203 (in fact 1.4209 stands in the system, 6 pips away) which is 14.208 of another trigger down.
The expansion with a 14.208 multiplier characteristic to crashes is particularly important here. The US data was more or less yet sort of catastrophic for the dollar from the economic point of view, yet it was the euro which catastrophically plunged to 14.208, not the greenback.

The economic point of view has little to do with a choatic dynamics. Just two different stories.
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Paul&Paul
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Equilibrium statistical mechanics

Postby Paul&Paul » Sat Jul 09, 2011 3:54 pm

Recall that statistical mechanics, which was created at the end of the 19-th
century by Maxwell, Boltzmann, and Gibbs, consists of two rather different parts: equilibrium and non?equilibrium statistical mechanics. The success of equilibrium statistical mechanics has been spectacular. It has been applied with success to subtle physical problems like the study of critical phenomena.
It is a fact of common observation that the behavior of bulk matter is often irreversible: if a warm and a cold body are put in contact, they will equalize their temperatures, but once they are at the same temperature they will not spontaneously go back to the warm and cold situation.

This is true about closed systems.
A strict increase in entropy corresponds to an irreversible
process. Such processes are also called dissipative structures.

In the financial markets we have reversible processes and fluctuations from
lower entropy to higher entropy and from higher entropy to lower entropy. From order to chaos and from chaos to order.
Chaos deals with dynamics and it is not a coincidence that the proposed equilibria lines show very subtle physical problems. In fact, those are levels at which the energy of the system becomes low. With no new energy pumped into the system, the market could stay there for a very long time. Low energy at equilibria means that the inclination to trade is low, volatility is low, risk appetite is low, engagement is low. Remember that equilibria are places where best sellers and best buyers book handsome profits and once done they can go for lunch. In quite a natural way, their engagement fizzles. But it is also an opportunity to resume aggressive trading. The party with an initiative will have an edge.
Last edited by Paul&Paul on Sun Jul 10, 2011 8:35 am, edited 2 times in total.

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