# Predicting the Markets Using Chaos Theory

• aricho
In summary, the conversation discusses the potential use of chaos theory in predicting markets. It is noted that while research can be done using chaos theory, accurately predicting with 100% accuracy is difficult. The conversation also delves into the definition of chaos theory and how it can be applied to systems like the stock market. The movie "Pi" is mentioned as an example of chaos theory in film, but one person considers it to be a bad representation.
aricho
Is it possible to predict the Markets using Chaos Theory? (or predict anything) If you have seen the aussie movie "the bank" you willl know that's what he does

Thanks

its possible to do research in markets using chaos theory,fuzzy logic, neural nets, GAs...but to PREDICT 100% accuracy is another thing.

hmm

haha yer

aricho said:
Is it possible to predict the Markets using Chaos Theory? (or predict anything) If you have seen the aussie movie "the bank" you willl know that's what he does

Thanks

There's also the movie Pi, it's pretty sketchy though.

hmm, "chaos theory" is such a vague term really. in essence it is non-linear dynamics, so it is arguably the study of any system whose equations are non-linear. there is more to it than that, obviously, but there is no reason that we cannot use the styudy of non-linear systems to model things like markets, indeed i believe they do.

if you're not familiar with linear and non-linear then let's have an example.

a pendulum is modeled by an equation

$$\ddot{\theta}=k\sin\theta$$

where $\theta$ is the angle to the vertical of the "string" this is a nonlinear equation that we cannot solve so we linearize it and replace $\sin\theta$ with $\theta$ a linear equation we can solve. non-linear dynamics is essentially trying to study the harder equations without this approximating step,

aricho said:
Is it possible to predict the Markets using Chaos Theory? (or predict anything) If you have seen the aussie movie "the bank" you willl know that's what he does

Thanks

That's not going to work. It sounds cool I know and oh yea, to get a real rise with people mention "Mandelbrot" and fractals. If markets exhibit chaos then by the very nature of chaotic dynamics, we are forever doomed to accurately predict their long-term behavior because of the nature of "sensitive dependence on initial conditions": Chaotic systems exhibit this property and it means that no matter how accurate we are in estimating the initial conditions of a system, we will always be off by a slight error. In chaotic systems, these errors grow with time until their magnitudes become equal and exceed the quantity of that which is being measured. Thus, prediction past these points is no better than guessing.

Edit: Oh yea, Peitgen in "Chaos Theory" does a marvelous job of describing Chaos Theory and gives fine examples how sensitive dependence disrupts long-term prediction of chaotic systems at every turn.

Edit2: Oh yea, just for the record, the non-linear pendulum can be solved using elliptic integrals.

Last edited:
<i>There's also the movie Pi, it's pretty sketchy though.</i>

Sketchy? I guess I'm confused by your use of the term. I think it's an excellent movie, and would recommend it.

Sorry dude - "Pi" was a pretty bad movie geared toward impressing non-scientist, non-mathematician types. Low-budget, horrible acting, horrible effects, and pretentious script.

## What is chaos theory and how is it related to predicting markets?

Chaos theory is a branch of mathematics that studies complex systems and their behavior. It is related to predicting markets because it suggests that even seemingly random and chaotic systems, such as the stock market, have underlying patterns and can be predicted using mathematical models.

## How accurate are predictions based on chaos theory?

The accuracy of predictions based on chaos theory can vary greatly depending on the complexity of the system being studied and the quality of the data used. While chaos theory can provide valuable insights into market behavior, it is not a foolproof method of predicting future market trends.

## What are some common techniques used to apply chaos theory to market prediction?

Some common techniques used to apply chaos theory to market prediction include fractal analysis, time series analysis, and neural networks. These methods use mathematical models to identify patterns and trends in market data, which can then be used to make predictions.

## How does chaos theory differ from traditional market analysis?

Traditional market analysis typically relies on linear models and assumes that markets are efficient and predictable. Chaos theory takes a more non-linear and dynamic approach, recognizing that markets are complex and can exhibit chaotic behavior.

## What are the potential benefits and limitations of using chaos theory to predict markets?

The potential benefits of using chaos theory to predict markets include the ability to identify patterns and trends that may not be apparent through traditional analysis methods. However, there are also limitations, such as the difficulty of accurately predicting non-linear systems and the potential for unpredictable events to disrupt market behavior.

• Classical Physics
Replies
39
Views
2K
• Set Theory, Logic, Probability, Statistics
Replies
2
Views
5K
• Beyond the Standard Models
Replies
12
Views
2K
• Set Theory, Logic, Probability, Statistics
Replies
7
Views
713
• Set Theory, Logic, Probability, Statistics
Replies
1
Views
821
• Set Theory, Logic, Probability, Statistics
Replies
4
Views
1K
• Beyond the Standard Models
Replies
19
Views
2K
• Quantum Interpretations and Foundations
Replies
33
Views
544
• General Discussion
Replies
6
Views
904
• Set Theory, Logic, Probability, Statistics
Replies
8
Views
2K