Sep

8

Dutch scientist Christiaan Huygens found in the 17th century that larger pendulum clocks will sync smaller ones.

Video by Veritasium: The Surprising Secret of Synchronization

Pendulums in the human world = our various belief systems (which are sometimes in competition to each other and go deep). Two examples perhaps: in finance: a trader has religious reasons why he /she does not think he deserves the STELLAR gains. Ways are found to turn accumulated gains into a loss! in health: why do some ppl stay sick and others recover miraculously against all odds?

Zubin Al Genubi writes:

The Kuramoto mathematical model describes synchrony in networks. The line between order and randomness occurs at the phase transition when the network nodes synchronize.

Building on Kuramoto's model, the Watts and Strogatz model makes testable predictions about interventions most likely to trigger cascades.

In small world network terms there are "vulnerable clusters" in the market. In market terms the vulnerable clusters are weak hands, funds faced with margin calls, or fund hitting a stop losses. Obvious 2d points or tipping points are stop points at prior lows. If a vulnerable cluster is close to the second tipping point, it can ignite a cascade.

Nils Poertner responds:

Mathematicians often find something which ordinary people know intuitively. 2 more examples:

1. Five teenagers bully a victim. Knock-out the strongest in the group and the rest will fall too (big bully was the dominant pendulum, trumping the small ones).

2. When the most valuable firm(s) in an index suddenly struggle (NVDA?), it often means bad things for wider index.

Asindu Drileba adds:

I found the same pattern in the "Complex Systems" community. An example in Secrets of Professional Turf Betting: The idea of "copper the public opinion" & "principle of ever changing cycles" are an intuitive description of the minority game & El farol Bar problem in complex systems. Statistical arbitrage is almost exactly what Robert Bacon describes as a "dutch book."

In Neil Johnson's Simply Complexity, he derives an insight that currency traders have (knowing what currency is "in play") using graph theory.

I think Simply Complexity is a very good book for speculators, since it uses accessible analogies and no complicated math. The book has a lot of analogies regarding the market. The most relevant section for Specs would be, Chapter 4: Mob Mentality (I however enjoyed the entire book).

A Few excerpts:

The bar-goers who tend to shift opinions about whether to go with history or against it, tend to lose more and hence eventually change their p value.

This reminded me of people that both go short & long in the market (I am long only). P is the probability of an event happening.

Figure 4.3 from the book and its caption:

We are naturally divided. The final arrangement of a collection of people, in the case of a bar where the comfort limit is around half the number of potential attendees. This shows the emergent phenomenon of a crowd who think that history repeats itself, and an anticrowd who think that the opposite will happen. Hence the population polarizes itself into two opposing groups. This polarization of the population represents a universal emergent phenomenon. It will arise to a greater or lesser extent in any Complex System involving collections of decision-making objects such as people, which are competing for some form of limited resource.

The figure is similar to the Arc Sin law of PnL. Something that appears in Ralph Vince's book The Mathematics of Money Management and Nassim Taleb's Dynamic Hedging. Unfortunately, I don't have a good intuition on the Arc Sin law of PnL.


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