The theory of chaos and market reality of Bruce Babcock.

The most nature people are more susceptible to the ideas that are giving hope. They trust in that, in what they wish to trust, despite of set of proofs of the opposite. Fleeting good luck forces many believing traders to become stronger in their false belief. In recent interview I have been asked of what is the most important quality the trader should have. I have answered: “There are a great number of various qualities, which the trader should have to become successful. All of them are important. But I should underline that there is one quality which most important is an ability to perceive a reality that what it is”.

Unlucky traders have the deformed idea about the markets, to themselves and that they actually do when trade. For them it is very heavy to dump from themselves these deformed submissions, therefore they are doomed to defeats in the long-term plan. Thus the market operates in such a manner that strengthens at them these false submissions. It smoothes the contradictions arising at them.

Introduction in the chaos theory: Possibility of studying of history of the market by mathematical and statistical methods and revealing of existence of certain repeating patterns and cycles is excluded.

The markets are nonlinear dynamic systems. The chaos theory is a mathematical apparatus for the analysis of such nonlinear dynamic systems. Application of this device shows that market prices have highly casual character with small trend component. The size of its trend component varies from the market to the market and from size of a time window. For an explanation of chaotic systems the concept fractals is used. Fractals are objects self-similarity having property, i.e. such objects which parts are similar to the whole object.

A popular example for an explanation is the tree. Though branches become ever less, however each branch remains similar on structure. As and at price ranges on month, week, day and intraday schedules the movement structure remains similar. As at objects of wildlife – at approach you see more and more details.

Other characteristic of the chaotic markets is so-called “sensitivity to entry conditions (sensitive dependence on initial conditions)”. It does these dynamical market systems such difficult for a prediction. As we cannot describe absolutely precisely a current situation and as the set of errors and discrepancies in the situation description are accumulated with the course of time according to the general complexity of system – the exact prediction becomes impossible. Even if we can precisely predict tomorrow’s changes of the prices (and we cannot), all of us will equally have zero accuracy in a prediction even for 20 days forward.

For those who want to participate in forex trading should start from learning the basics of currency exchange market to make sure you do not have problems with this industry.

There is another option – you can hire experienced traders to managed your trading account – read more about forex investment here. Also make sure to look for the knowledge in a good forex book.