The Physics of the Markets
Sir Isaac Newton said, having participated in the South Sea Bubble and losing about 20,000 pounds of his own investment, that:
I can calculate the motions of the heavenly bodies, but not the madness of people.
It is interesting to note that present day technical analysis has been inspired by Newtonian physics, like the concept of momentum of a stock’s price. Other areas in physics are drawn upon to help develop techniques using harmonics, waves, and cycles for the analysis of markets.
Are these techniques effective in understanding the movement of prices, ultimately determined by the “madness of people”? Practitioners of various methods will certainly have their opinions about the strengths and weaknesses of these techniques, but often it comes down to the artistic application of human judgment. This, of course, is the creative nature of analysis.
Artistry and analysis seem to be opposing concepts. However, using creativity to develop new techniques is good. Being artistic in the analysis of results from a technique - well… That is really up to the user. I am more comfortable being analytical in the application of the methods and saving my creativity for creating new methods.
So, can new inspiration be drawn from the world of Physics?
