A Butterfly Flaps
Chaos Theory And The Financial Markets
A butterfly flaps its wings... a hurricane strikes miles away.
According to Chaos Theory, a seemingly irrelevant action can precipitate, and
contribute to, a major event. The right set of factors comes together and a major
event takes place.
It's easy to imagine a fanciful chain of events that would initiate a market
A housewife attends to her crying child who has tripped over the newspaper, and
in doing so, leaves the refrigerator open during an unseasonably warm day. It
breaks down, and the family needs a new one.
To get funds for a new refrigerator and some added home repairs, she sells off
a large chunk of IBM stock that her parents gave her as a wedding present.
By pure chance, at the moment that she sells the stock, a specialist monitoring
the action gets it in his head that the sale of a large chunk of stock means
something, so he sells off his positions in the tech sector.
Next, a financial reporter sees the sale and tries to interpret it. He reports
that it reflects a shortage of silicon and suggests investors unload their tech
the short-term, anything can happen, and it is vital to keep this
Many people follow his advice and a massive sell off takes place.
Perhaps it seems a little unlikely that all of this can happen, but you get
Just like how scientists claim, according to Chaos Theory, that a butterfly
can start a hurricane, you can imagine that a few key seemingly minor events
can start a major market move
Is It Economic Factors? Or Fear And Greed?
Many investors view the markets from a traditional long-term buy-and-hold strategy.
They look at the markets in terms of fundamental variables, such as consumer
confidence, demand, and general economic factors that impact a stock price
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If a company makes profits that are in high demand,
the price goes up.
Market timers though, realize that many market moves are the result of psychological
factors, such as opinions or emotions of fear and greed. In the short-term, anything
can happen, and it is vital to keep this in mind.
Nothing is certain in the markets, but is this something to worry about?
Not if you take precautions. By precautions, we mean "following a
strategy that uses the ups and downs (trends) of the market itself
to generate buy and sell signals."
This way you are always in the current trend, never miss a trend, and are never
trading against the market's trend.
Worry Can Be The Doom Of Market Timers
Indeed, a potential chaotic event can be a good thing.
The initial event that set off a market move isn't important. Who cares why
the masses buy or sell, for example, as long as you take advantage of the move?
cares why the masses buy or sell, for example, as long as you
take advantage of the move?"
Market timers must learn to view such moves as opportunities to
If you have a timing signal that is ruined by an unexpected adverse
event...the chaotic nature of the markets coming to the forefront...
there is no reason to worry.
In fact, it is absolutely "going to happen." Signals will go against
you. Accept this and you will profit. Worry so much that you jump out
of a tried and true strategy because of a losing trade or two, and
you will eventually fail at timing the markets.
If you are following a trend, and it unexpectantly reverses, the (trend following)
strategy will quickly reverse and place you right back on the right path.
It is necessary to accept that trading can be chaotic. Anything can happen,
but it doesn't need to be a source of worry. As long as losses are kept small,
and profits are allowed to run, you will beat the markets.
Worry can be the doom of market timers and traders, but if you accept the fact
that uncertainty and chaos are part of the inherent nature of the markets,
you will accept it when it occurs and recognize that this same chaos is what
will make you profitable in the end.
A losing trade here. A losing trade there. All meaningless in the big picture.
By following trends, which is FibTimer's market timing specialty, you are always
profitable over time.
You profit in "all" of the big trends. By following trends with FibTimer's
timing strategies, you are always with the big market moves
when they occur...and there is always a big move (trend) just
around the corner.
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Disclaimer: The financial markets are risky. Investing is
risky. Past performance does not guarantee future performance.
The foregoing has been prepared solely for informational
purposes and is not a solicitation, or an offer to buy or
sell any security. Opinions are based on historical research
and data believed reliable, but there is no guarantee that
future results will be profitable.