Key Trading Article

Introduction

Concepts from modern physics—especially fractals and quantum theory—are applied to financial markets by treating price movements as patterns produced by collective human behaviour, which can be analysed through structured wave patterns and probability-based modelling.

Many years ago, when I was looking for models to explain how markets behaved, I sought to employ my training as a physicist and translate our understanding of the physical universe into guidelines and principles that could be used to predict markets.

From the start of my career in finance as a discretionary trader 35 years ago, I have believed that the price of a market at any one time contains all aspects of the information available. Why I hear you ask?

We would all like to benefit from seeing further into the future, whether it's buying stocks, crafting policy, launching a new product or simply planning the week's meals. Unfortunately, people tend to be terrible forecasters! This is because they are part of a collective thought process. Wharton Professor Philip Tetlock exemplified this in a landmark 2005 study, saying that "even experts' predictions are only slightly better than chance". However, an important and underreported conclusion of that study was that some experts do have real foresight.