Statistics & Chaos Theory for Traders - Online resources & books

RichKid said:

I've been coming across more and more references to chaos theory and statistical analysis of various aspects of trading. We should learn more about these important topics. Apparently HG Wells observed:

"If we want to have an educated citizenship in a modern technological society, we need to teach them three things: reading, writing, and statistical thinking."

The experts on ASF often refer to various terms which scare the living daylights out of me from time to time (I am sorry to say this, but Wayne is the main culprit...), various terms like Black Swan, fat tails and Kurtosis suggest to the uninitiated that he is referring to either a person who is unloved or one with an exotic disease (probably unloved as well).

The following references have been helpful to me. Are there others that people have had first hand experience of that may be helfpul to traders and those studying financial markets? Please share, as I have, to get the ball rolling.

Most uni or tafe students studying maths, business or science would have some proficiency in this area (although many say the subject sux bigtime!).

- Trend Following by Covel (2005 edition- latest ed. The HG Wells quote is from Chapter 8 ).

- http://www.fractalfinance.com/index.html

- http://metalinks.metaculture.net/science/fractal/

Thanks in advance to everyone!

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RichKid said:

I've been coming across more and more references to chaos theory and statistical analysis of various aspects of trading. We should learn more about these important topics. Apparently HG Wells observed:

"If we want to have an educated citizenship in a modern technological society, we need to teach them three things: reading, writing, and statistical thinking."

The experts on ASF often refer to various terms which scare the living daylights out of me from time to time (I am sorry to say this, but Wayne is the main culprit...), various terms like Black Swan, fat tails and Kurtosis suggest to the uninitiated that he is referring to either a person who is unloved or one with an exotic disease (probably unloved as well).

The following references have been helpful to me. Are there others that people have had first hand experience of that may be helfpul to traders and those studying financial markets? Please share, as I have, to get the ball rolling.

Most uni or tafe students studying maths, business or science would have some proficiency in this area (although many say the subject sux bigtime!).

- Trend Following by Covel (2005 edition- latest ed. The HG Wells quote is from Chapter 8 ).

- http://www.fractalfinance.com/index.html

- http://metalinks.metaculture.net/science/fractal/

Thanks in advance to everyone!

Click to expand...

Snake Pliskin said:

Wel my contributions to this thread will be limited due to my lack of education in this area, but here is some stuff to go over:

First a link to a video of Benoit B. Mandelbrot who theorised "the fractal misbehaviour of markets" and wrote a book about it. His accent is very difficult and I am yet to finish looking at it.
http://www.researchchannel.org/prog/displayseries.asp?collid=882

Has any one read his book?
http://bookweb.kinokuniya.co.jp/guest/cgi-bin/booksea.cgi?ISBN=0465043550

Some reviews:
http://search.barnesandnoble.com/booksearch/isbninquiry.asp?z=y&pwb=1&ean=9780465043552

I am interested in how fractals relate to Risk and Return.

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The stock markets are said to be nonlinear, dynamic systems. Chaos theory is the mathematics of studying such nonlinear, dynamic systems. Chaoticians have determined that the market prices are highly random, but with a trend. The stock market is accepted as a self-similar system in the sense that the individual parts are related to the whole. Another self-similar system in the area of mathematics are fractals. Could the stock market be associated with a fractal? Why not? In the market price action, if one looks at the market monthly, weekly, daily, and intra day bar charts, the structure has a similar appearance. However, just like a fractal, the stock market has sensitive dependence on initial conditions. This factor is what makes dynamic market systems so difficult to predict. Because we cannot accurately describe the current situation with the detail necessary, we cannot accurately predict the state of the system at a future time. Stock market success can be predicted by chaoticians. Traders can succeed trading from daily or weekly charts if they follow the trends. A system can be random in the short-term and deterministic in the long term.

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