Expert: Sherman D. - 12/20/2005

Question
Please can you tell me what is chaos theory,and
how is the subject used in the stock markets.
is there any good books you can reccommend.

Thankyou

G Shaw.  

Answer
chaos theory

chaos theory, in mathematics, physics, and other fields, a set of ideas that attempts to reveal structure in aperiodic, unpredictable dynamic systems such as cloud formation or the fluctuation of biological populations. Although chaotic systems obey certain rules that can be described by mathematical equations, chaos theory shows the difficulty of predicting their long-range behavior. In the last half of the 20th cent., theorists in various scientific disciplines began to believe that the type of linear analysis used in classical applied mathematics presumes an orderly periodicity that rarely occurs in nature; in the quest to discover regularities, disorder had been ignored. Thus, chaos theorists have set about constructing deterministic, nonlinear dynamic models that elucidate irregular, unpredictable behavior (see nonlinear dynamics). Some of the early investigators of chaos were the American physicist Mitchell Feigenbaum; the Polish-born mathematician and inventor of fractals (see fractal geometry) Benoit Mandelbrot; the American mathematician James Yorke, who popularized the term “chaos”; and the American meteorologist Edward Lorenz.

Found at www.infoplease.com/ce6/sci/A0811371.html

If you watch CSI, it at one time states "I butterfly flaps its wings here and you get a hurricane off of Taiwan" or something like that. That is chaos theory. Its basically a series of events that explains how something can happen as a result of another.

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Also referred to as non-linear dynamics, chaos theory is a mathematical concept explaining that it is possible to get random results from normal equations. The main precept behind this theory is the underlying notion of small occurrences significantly affecting the outcomes of seemingly unrelated events.

Chaos theory has been applied to many different things, from predicting weather patterns to the stock market. Simply put, chaos theory is an attempt to see and understand the underlying order of complex systems that may appear to be without order at first glance.

Related to financial markets, proponents of chaos theory believe that price is the very last thing to change for a stock, bond, or some other security. Price changes can be determined through stringent mathematical equations predicting the following factors:

1) A trader's own personal motives, needs, desires, hopes, fears, and beliefs, are complex and nonlinear.
2) Volume changes
3) Acceleration of the changes
4) Momentum behind the changes
Chaos theory is highly controversial and extremely complicated.

For more info, go to www.investopedia.com/terms/c/chaostheory.asp

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www.investopedia.com/offsite.asp?URL=http://www.imho.com/grae/chaos/chaos.html

http://library.thinkquest.org/3120/text/s-market.htm

http://library.thinkquest.org/3120/text/s-market2.htm

I used www.google.com, and typed in Chaos Theory, Stock Market as a search.