Oct

26

I am reading The Elegant Universe by Brian Greene about the development of Super String Theory. Greene, a leading physicist and string theorist, traces the development of the ideas which led to General Relativity and Quantum Mechanics in the clearest explanation I have seen yet. If an idea can’t be explained in simple non technical terms then it is not really understood.. They don’t really yet understand Super String theory, but have some interesting ideas.

General relativity came in part from the idea that accelerated motion and gravity are the same to the person experiencing it. Gravity is an artifact of the shape of space and time. Motion approaching the speed of light reduces space and time. So light should be timeless, and the same stuff that was around at the beginning. One of the main insights of quantum mechanics is that our predictive power is fundamentally limited to asserting that such and such outcome will occur with a given probability. Quantum mechanics arose form Max Plank’s discovery in 1900 that rather than picturing energy as waves, lumps or packets is a better description in the form of probabilities. Super String Theory attempts to unify the conflict between relativity and quantum theory and their differing results in the macro and micro world by removing the infinite probabilities outside of the 0:1 framework. Super String Theory replaces the points of Quantum Theory with strings or Kalusa-Klein curls of multiple dimensions. (Out of Flatland revisited!) As an aside my theory is that our universe will be found to curve back on itself at the ends, and that it is just a Planck’s length inside another bigger universe, and that the little Planck length curls inside the strings are separate little universes themselves and so on ad infinitum bigger and smaller dimensions.

Despite Doc’s admonishment, the same ideas that helped physicists discover new tools should help market speculators model the markets. Markets and physics both rely on probabilities which is why physicists are seen on Wall Street frequently. Markets tend to look like waves, but we know that it is better to regard them in probabilities, and that it may be appropriate to see them in packets. An example is the last three months have been lumps of price clusters with jumps between them, five days of price clumps, then another big jump, like the hotel maids I wrote about last year. A continuous model has difficulty capturing these packets of price and then the quantum jumps to higher levels. Rather than model on linear time the Calabi-Yau idea of multidimensional time provide a good model. Tick charts are a start in this direction as they model a different dimension other than time. Market depth, order speed, order source are all dimensions other than time upon which to model markets,

Another example is microstructure theory as a parallel to micro physics. To the retail investor, the Dow represents the market. When it hits news high, he feels it is a good time to buy back into the market. To the public price is a defined point. To the chartist, the market waves outline meaningful relationships. To the speculator the price action is an transitory iteration of probabilistic sequence and uses statistics to model probabilities. Even deeper than the point of price are the deeper structures of the markets that like space and time to the relativist, and energy packets to the quantum mechanic, market structures shape the form and function of price movements and allow market events to occur and define the artifacts of their shape. To the market physicist, price is not just a point, but rather a field of probability spread out over a range over a period of time. The probability field is a better way to regard the markets.. Focus on point and execution can be misleading. Closer examination reveals that price is quite ephemeral. It jumps, changes, flips, and at deeper levels is based on much different criteria than simple price quotes against linear time. Modeling these things in markets is as important as the study of physics to modern life. The study seems pointless at times, but one or two breakthroughs can be indeed ‘meals for life’. Why stay in Flatland and live a 2 dimensional existence?


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