When Complexity Wears A Random Disguise
Have you ever been to an art museum and got close to a painting? Not close enough to get arrested for defilement of an artistic work, but close enough to see the minute detail that makes up that particular piece of art.
The blobs of color. Slashes of brush stokes. The cracks. The bumps of canvas.
It’s kind of um… well… It’s kind of a mess. (In the case of Jackson Pollock, it’s even messier.)
It looks random and without any design. The artist, obviously, was able to step back from the minutia to see how all the disparate elements would flow into a subtle, but complex work of art.
I know what you’re thinking: What the hell does this have to do with stocks? You may not have even used the word “hell.”
Here’s my point. And I do have one.
There are those who preach that the stock market and, by extension, any market, is random and unpredictable. The movements of a market are based on random, willy-nilly, fluctuations.
The blobs of guesses. Slashes of surprises. The speculation. And the bumps of news.
But step back and look again. Could it be that this randomness is just a higher order of complexity, like the artist’s masterpiece?
The analogy fails to acknowledge the continual movement of the market, but this only adds another layer of complexity. It does not necessarily signify randomness, nor rule out that there is a potential for predictability, at least in certain time frames.
Because the brain can not grasp the high level of market complexity, it immediately determines that the swings and gyrations–the minutia that makes up the market–are random events.
While the brain can’t see these patterns, advanced technology can. What we’re developing are Automated Trading systems that can see patterns and relationships where the brain sees only the violent clash of random events. By identifying these small patterns, it becomes increasingly more possible to predict how these patterns move and change.
Related posts:
- Fooled by Complexity: A Black and White Swan Theory
- This Is Your Brain On Money
- Black Swans, Complexity, And Government Intervention
- When You See The Black Swan, Ride It
- Investors Face A Rotting Big Apple
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is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
