Does Butterfly Effect apply to trading?
- Thread starter NanoTick
- Start date
The butterfly effect is overrated. The universe strives to avoid paradox. Only macro-events can have the effect you describe, ie: housing boom/bust, world trade center, etc.
Also, keep in mind that the market tends to lag the economy. A recession could be well underway while the DJIA is still hitting new highs!
Also, keep in mind that the market tends to lag the economy. A recession could be well underway while the DJIA is still hitting new highs!
Uh... markets price in anticipations of future growth... it's the other way around... GENERALLY, stock prices will fall ~ six months before a recession.
Also, butteryfly effect towards trading... maybe it applies on the massive scale of "sell 500 shares AAPL" causes the entire tech sector to drop, but what about a more minor scale? What about on a stock that trades 500,000 shares daily, does taking out a thin price level with 100 shares drastically alter the closing price of that stock that day under certain circumstances?
The "bunny" wrote:
Uh... markets price in anticipations of future growth... it's the other way around... GENERALLY, stock prices will fall ~ six months before a recession.
Having been around the block a few times i would have to agree with the bunny. The stock market is, generally, the most reliable leading indicator of the economy. And there is an "acceleration effect." The reason for this is that when the market turns down people whose retirement accounts and life savings are tied up in the market feel less wealthy and began playing their cards closer to the chest, so to speak. Hence the rate of economic slowdown tends to be accelerated.
The present economic signposts are pointing South. But the economy is just now making a peak, a little past it actually. So it is too soon yet for the expected economic downturn to be reflected in the market. Rest assured the market will tell us when a recession is on the way.
Uh... markets price in anticipations of future growth... it's the other way around... GENERALLY, stock prices will fall ~ six months before a recession.
Having been around the block a few times i would have to agree with the bunny. The stock market is, generally, the most reliable leading indicator of the economy. And there is an "acceleration effect." The reason for this is that when the market turns down people whose retirement accounts and life savings are tied up in the market feel less wealthy and began playing their cards closer to the chest, so to speak. Hence the rate of economic slowdown tends to be accelerated.
The present economic signposts are pointing South. But the economy is just now making a peak, a little past it actually. So it is too soon yet for the expected economic downturn to be reflected in the market. Rest assured the market will tell us when a recession is on the way.
It isn't overrated at all.
Where and how do macro events begin? They don't simply spring from nowhere.
Trace their source. They begin with a very small impulse.
Look at the origin of any important event or movement throughout history, whether economic or political, and you'll find the single thought of one person, sometimes completely accidental, often initiated by a sight or sound so small that anyone else would fail to notice.
i heard that: wrong answers are corrected over time. it is wrong
questions that make most prolonged trouble. the issue with the
butterfly effect is that it does not make a real difference for anyone
and it certainly does not in trading. simply because there are
trillions of butterfly wing movements and by definition it is the
chaotic nature that makes some result in storms, without any
hint which ones it will be. and while each butterfly wing clap CAN
result in a storm thousand miles away, it most likely WILL NOT.
so it is really completely useless to be aware of all these butterflies,
it might be intellectually challenging but for trading purposes it
most likely leads you in a completely unproductive direction ...
IMHO most likely directly opposite the way to trading success.
do not look for butterflies, look for elephants. even better:
hurricanes ... so read about butterflies, but watch the weather
outside, if you want to go swimming.
questions that make most prolonged trouble. the issue with the
butterfly effect is that it does not make a real difference for anyone
and it certainly does not in trading. simply because there are
trillions of butterfly wing movements and by definition it is the
chaotic nature that makes some result in storms, without any
hint which ones it will be. and while each butterfly wing clap CAN
result in a storm thousand miles away, it most likely WILL NOT.
so it is really completely useless to be aware of all these butterflies,
it might be intellectually challenging but for trading purposes it
most likely leads you in a completely unproductive direction ...
IMHO most likely directly opposite the way to trading success.
do not look for butterflies, look for elephants. even better:
hurricanes ... so read about butterflies, but watch the weather
outside, if you want to go swimming.