How Chaos Theory affects the Stock Market, and explains unpredictability

Do you know how chaos theory is relevant to financial and stock market analysis? Some technical analysis experts refer to using chaos in their analysis of stock and financial markets. But these commentators usually are not using actual chaos theory to provide meaning to financial market behavior. Chaos theory is a mathematical theory which explains how some kinds of systems behave in unpredictable ways. It's not the same thing as randomness and means something quite different. In this video we will be digging into chaos theory and discussing the similarities with financial and stock markets, and what we can learn from each.

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[jaymoneytrader]

This will go over rmost people's head but this is a great video I'll be sharing it in my next video on my channel

[raneena]

Markets definitely have randomness, as the individual trades that compose them have randomness. However, that does not mean the markets are not chaotic. I think they are stochastic chaotic systems.

They are definitely random because the trades have randomness. Many of them are based on exogenous events which for all intents and purposes may as well be random (like a CEO dying, a merger being announced, a product failing, etc.). Additionally, the exact time at which a trade is made (which effects stock prices) is somewhat random, especially with fundamentals. With chaos, even seemingly negligible random innovations (such as latency from geographical location) bring randomness.

[murilomagossobonilhacavagg]

Excellent, I hope you can continue sharing knowledge through your videos.

[Oddogcatchingmode]

Major problem to assume the market is random at all. Interesting vid under the assumptions though

[mikevincent]

Butterfly effect is compouned by 100, 000, 000 simultaneous butterfly effects that each cancel eachother out. True butterfly effect can only occur when there's just one butterfly if that makes sense (this is how I imagine it)

[Cnicholasdownie]

Exactly what I was looking for.thsnk you

[helloteacher]

i use chaos theory with fractal analysis and it has greatly helped my trading performance

[mathtv-waytolearnmath]

Excellent, sir can you discuss and talk about the detection of chaotic phenomena raised in the dynamical system; many chaos detecting tools are available in the literature such as 3D phase portraits, Poincare maps, Lyuapnov exponents, Bifurcation diagram etc. Pls make a complete video on detection of chaos in dynamical system through Matlab tool.

[artaasadi]

that was very useful and interesting, but I have a question, if we want to model the price using chaos theory we may need an equation, because the chaos theory always has a way of description for non linear dynamics like heat equation or navier-stroke equation. Even if want to use neural operators, the data without an equation may not be sufficient. What do you suggest for this problem?

[dylanhunt]

“How something unpredictable explains something unpredictable”.

[quebono]

1:15, I have a correction here, Markets are random, if they are efficient.

[johnkerr]

What is 'short term, medium and long term' in time?

[munalemj]

I disagree. However, chaos theory does occur in smaller time frames (seconds, 1 min, or anything less than 4 hour timeframes)
The markets do have a similar behavior where it bounces in such a way as the video shows and forms wave patterns as such.
Chaos theory is prevalent within lesser time frames in the markets.
This is one of the reasons why majority of Day Traders lose money.
However, when you step back further out you would be able to see the full structure of the stock ticker or currencies.
These structures form very similar patterns. These big scale patterns are composed of smaller patterns of it's similar strength formations. Each of the scales are considered a cycle.
The markets are composed of cycles within cycles within cycles within cycles or strength patterns, within strength patterns, within strength patterns, etc.
Most people do not see the similarities because they look at the prices and how the prices form.
However, to see these almost exact patterns you need to look at what causes them to move.
The underlying power of the markets is strength. Strength is the combined power of all trades happening at a certain point in time. Strength is the GOD of the markets.
By analyzing the flow of strength you can see the patterns along with the candles they form.
And by analyzing in which area of the flow you are in you can determine which area of the pattern you are currently in.
By doing so, you can see when they would spike up or collapse. Furthermore, it allows you to foresee almost everything in the markets.

[rudrajitghosh]

How can human behavior be mathematically predicted?

[deegaming]

Well, I look at a forex line chart, and a pseudorandomly generated line chart, and they both look the bloody same. It's random... chaotic... unpredictable. It's all the same thing. They all have one thing in common: You cannot predict the future.
If it's random, it's unpredictable. If it's unpredictable, it's random. It's not rocket science.

[paulnyagini]

😂😂😂😂 when something is unpredictable is basically random.