May

1

For a finite-size system to persist in time (to live), it must evolve in such a way that it provides easier access to the imposed (global) currents that flow through it.

- Adrian Bejan

At Chair's suggestion I am enjoying some of Prof Bejan's books:

Time And Beauty: Why Time Flies And Beauty Never Dies

Design in Nature: How the Constructal Law Governs Evolution in Biology, Physics, Technology, and Social Organizations

As applied to current markets it had some trouble breaking the 4500 big round last few times and that is a big constructal round.

The "Professor" defines the Constructal law: Every system flows in a design that evolves to improve flow. Examples of flow systems are river deltas, blood circulation, heat transfer, economic systems, and the stock market. The "flow" of the stock market is to provide capital transfer from investors to companies to run business. Chair says that the flow has evolved to transfer wealth from the public and to cause them to do the wrong thing.

The standard time price tape bar chart might not be the best visual to track the increase in capital flow. A good type of chart would be in money flow defined as dollars flowing to companies ie total net stock sales less vig which would measure the increase and decrease of capital flows in and around the system. The underlying principle is based on simple economics. Growth leads to higher profits and prices.

The variations in price are needed to maximize the flow so participants can put money (energy) into the flow at a price they like. Sometimes buying the bottom isn't best if one needs a lot of money. Stated another way there may not be sufficient liquidity at bottom tick. Our new chart should show available and new liquidity or loss. Analysis should find areas/times/ prices of liquidity and when that leads to higher prices and profits. I'm not sure if the standard money flow charts do this.

Flow systems often look like trees or rivers. Binomial statistics would be a useful tool. Ralph Vince used binomial statistics and branch analysis for his risk analysis. I don't fully understand the derivations but appreciate the outcomes. A branch chart would show points of high and low money flow and branch to profit or loss outcome at each branch. Binomial analysis would show direction for profit higher price path.

In markets infrastructure is to flow commissions to brokers. Maximum flow will occur in a range. That is why ranges around 50's are so common. Its in the middle. Its a time of uncertainty.

Jeff Watson adds:

Which segues nicely with what my mentor told me in the 70’s that markets will move in the direction that will maximize the number of trades in that period. If there is more stuff to be traded at .6, the market will not be moving away from .6 to trade at .2, it’s going to clear out the .6 trades before it moves away, either way, from the price. This supports the maximization of commission for the brokers.


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