# Electrical and Market Induction, from Victor Niederhoffer

December 16, 2007 |

Reading my daughter Kira's physics textbook PSSC Physics by Schaim, Cross, Dodge, and Walter, which tries to teach physics from the ground up through experiments, rather than mathematics or principles, I was struck by the many beautiful experiments involving the buildup of electrical charge by contact, by the mere proximity of a charged object to a conductor, electrical induction and the electroscope. In brief, as many will recall, if you place a negatively charged object, like a piece of amber rubbed by fur (where is Soros with his world famous amber collection when you need him?), near a conductor, like silver, the negatively charged free electrons in the silver are repelled by the negative electrons in the amber. The result is a net positive charge on the side of the silver near the amber, and a negative charge on the other side. The entire body of silver is attracted towards the amber because the positively charged side is closer to the negatively charged amber than the negatively charged further away side. The force of attraction of two electrically charged objects varies inversely with the square of the distance.

Similarly if you bring a positively charged object such a glass rod rubbed with silk, near the silver, the free negatively charged electrons in the silver will be attracted by the glass rod, leaving the side near the glass rod negatively charged and the side further away from the glass rod positively charged.

The whole situation and all the experiments with the electroscope seemed exactly like the buildup of buys and sells at a price , the repelling of buy orders as a price falls to a level,and then after failing to touch it, moves back to some higher level, and the net positive charge that remains on the side nearer to the price as it moves back up. Similarly, it corresponds to the negative charge that results when a price rises to a level, fails to touch it, and then moves back to some lower level. There is a net negative charge on the side nearer the fallen price and a positve charge on the other side.

The whole situation called for testing. To do so I started with 2 pm prices each day from 1999 to the present and noted how close they were to the low of the day. I hypothesized that 2pm prices very close to the previous low of the day would be attracted to the low, and such prices would be bearish until the close.and that this force would vary with the square of the distance from the previous low as of 2 pm. Furthermore, I hypothesized that 2 pm prices that were very close to the previous high would be bullish and that the bullishness would diminish the further away the 2pm price was from the previous high.

The results confirmed my hypothesis. For example with S&P futures prices there was 190 occasions when the price at 2 pm was a mere 0 to 1 point above the previous low of the day. The expected move to the close was -0.7 points to the close with a standard deviation of 5 full points. Conversely, for the 243 occasions when the 2pm price was just 1 or less below the previous high of the day , the expected move to the close was 0.6 point with a standard deviation of 5.6. Varying the distance of the 2pm price from the lows and high until they were very far away came up with results similar to the inverse square laws experienced in electricity.

Aside from the fact that the results have not held up very well during the last year, the results are quite interesting and suggestive.

I would be interested in other ideas that readers have on the buildup of charges by touching two dissimilar objects,or prices, moving them close together, or the actual flow of electrons or buy and sell orders, when hooked up to an external energy source,of varying strength, i.e. current and voltage, how it related to distance, and the conductivity of the materials and markets involved.

## Rod Fitzsimmons Frey reminisces:

Back around 1973 (when 13) while in Junior High School I found a nice little project to do for the school science fair in a book of experiments. The project involved, to my recollection, filling a short paper tube with nails and then coiling copper wire around the tube and finally connecting the leads to a variable transformer left over from a model, electric race car track. Then a separate coil of wound electric wire was made (believe all wires were left coated for safety) and a small light bulb attached.

By creating an electromagnetic field with the nails and coiled wire, that varied or fluctuated to some degree with the AC current, all you needed to do was bring the secondary coil with the small light bulb near it and the bulb would glow. It was fascinating and appealing to see a light come on with no direct connection to an outlet–especially when you are conditioned to things being run by wires– a bit magical really for such a simple device.

The science fair project was named, "What is Induction?". The effect is called "Lenz's Law". There are many demonstrations on the web.

I still remember though the much more elaborate and original science fair displays put together by some of the brilliant kids in the county (with perhaps a wee bit of help from their doctor or engineer mother or father) that were put on display at the local mall. Young kids can do a lot with just a little bit of pushing (not too much).

Interestingly enough there have been recent articles on using induction (which Tesla really thought of doing a long time ago) in order to have wireless lighting and appliances in the house.

Along the same lines, you may be interested in a toy I built for my father-in-law, which demonstrates some principles of physics and, I believe, markets, especially with regard to volatility, and if my limited testing is not mistaken, especially in markets between countries.

I started with some disk-shaped rare-earth magnets . These magnets have exceptionally high power for their size. I used a stack of 5 disks, although 1 would work as well.

An aluminum tube with an inner diameter slightly larger than the magnets' diameter had holes drilled radially along its length. The holes don't affect operation but let the magnets be seen inside the tube. The tube needs to be non-ferrous and a good conductor.

Now drop the stack of magnets into the tube. They will float down very slowly, almost hovering in the tube, until they get to the bottom where they will fall normally. It is astonishing and delightful to watch them seemingly defy gravity within the aluminum tube.

The effect comes from the motion of the magnets inducing eddy currents within the aluminum tube. The eddy currents, being circular, induce their own magnetic field, which opposes the magnetic field of the disk magnets. That opposed magnetic field, created by induced currents from the original magnets, influences their progenitor and suspends the physical disks. But there are losses in the system, so the drift wins in the end.

Recent posts have revolved around physics, so here is a link to one of the free and popular physics lectures given by Walter Lewin, through MIT OpenCourseWare.

And here's the NYT article on Dr. Lewin:

At 71, physics professor is a Web star

CAMBRIDGE, Massachusetts: Walter H. G. Lewin, 71, a physics professor, has long had a cult following at MIT And he has now emerged as an international Internet guru, thanks to the global classroom the institute created to spread knowledge through cyberspace.

Professor Lewin's videotaped physics lectures, free online on the OpenCourseWare of the Massachusetts Institute of Technology, have won him devotees across the country and beyond who stuff his e-mail in-box with praise.