If you follow the history of science, you will find nothing that predicted the introduction of the theory of relativity. Until the twentieth century, classical science dealt with four basic elements that were considered separate from each other: mass, energy, space, and time. Einstein, who seemingly came out of left field, introduced his theory of relativity, which basically states that space and time are really the same thing. He also pointed out that matter and energy can be converted from one state to the other and therefore are not different. He often stated that there are really only two components of the universe:
1. Nothingness.
2. Condensed nothingness, which we call form or things.
This led to undreamed-of innovations such as atomic energy and changed science's view of the world forever. About the only thing that Einstein left us as a constant was the speed of light. The next revolutionary development in modern science, quantum mechanics, took away even that constant.
After the discovery of subatomic particles, our conceptually logical world went haywire. Subatomic particles do not "behave" as they should, or at least the way we think they should. Our most basic assumptions came into doubt. A number of things apparently traveled much faster than the speed of light. In fact, there was evidence that some things travel so incredibly fast that they could be in two places at once. That was not supposed to happen, according to classical science. In 1964, John Stuart Bell, a brilliant scientist, introduced a notion he called the non locality of causes. This cast doubt on the entire theory of cause and effect. Bell said individual causes could not be isolated. This is quite a serious concept.
Most of us tend to run our lives and our trading with cause-and-effect assumptions such as "Why did I catch that cold?" or, more particularly, "Why did I lose on that trade?" If, as Bell maintains, this is not the way the world really works, we might have our ladder of learning leaning against the wrong building. Thousands of experiments offer positive proof that Bell's theorem is indeed a more accurate description of how things really work. Bell maintains that everything in the universe is connected. You are a part of me and vice versa; whereas Aristotle maintained that everything had its own discrete boundaries and could be located and categorized. The next science-changing innovator was another brilliant American scientist, David Bohm. Bohm was caught up in the terrible McCarthy hearings in the 1950s and chose not to live in a country that would allow such travesty of human justice. He moved to England and was a research professor at the University of London. Bohm went even further than Bell, maintaining that not only is everything in the Universe connected but everything is actually the same thing. Everything comes from the same shimmering quantum soup. In the market, we are looking at a very non-Aristotelian world in which there are no discrete categories, no actual nouns, and no real long-lasting stability. In this new view of the world, everything is constantly changing and those very beautiful smooth shapes of Euclidean geometry are themselves aberrations and not the norm. The materials that scientists through the centuries had ignored as "random" variations are actually the cornerstones of reality. As mentioned before, the two areas where classical science makes little headway are: turbulence and living systems. From the shoulders of relativity and quantum mechanics came a new approach whose goals were to study turbulence, living systems, and nonlinear behavior. The techniques were impossible to deal with mathematically before the advent of very powerful computers, but the questions had been asked centuries before.
Before Columbus landed in America, the fifteenth-century mathematicians were asking questions about Chaos. Their theoretical questions concerned the various levels of Dimensionality. For example, a point has no dimensions, a line has one dimension, a plane has two, and a solid has three. They understood that even a crooked line has only one dimension as long as it does not cross itself and create a plane. Suppose then that a very crooked line is placed on top of a rectangle (plane) and moves over the surface of that plane but never crosses itself. It is so crooked that it covers up 50 percent of the plane as it moves off to the other side. The mathematicians' question was, quite simply: What is the dimension of that line? It can't be one dimension because it covers half the plane (which is two dimensions), and it can't be two dimensions because it doesn't cover the entire plane. (Stay with me here because this concept has changed our world and will change it even more so in the future.) In addition to this concept of higher dimensions, two other scientific developments have altered our world view. One is the concept of cybernetics, which came from a Greek word meaning steersman--the man who holds a boat's rudder, and who can, with a small amount of force, move a much larger force (the boat). Cybernetics does not follow Newton's law of motion, which says that for every action there is an equal and opposite reaction. A small action on the rudder produces much more than an equal reaction. Cybernetics came out of information theory, which was developed during World War II in an effort to get more communication through the existing cable that crossed the Atlantic Ocean between America and England. Basically, information theory points out that there are at least five parts to any communication: (1) a source, (2) an encoder, (3) a message, (4) a decoder,and (5) a receiver. The important point here is that the decoder comes from and is attached to the receiver whereas the encoder comes from and is attached to the source. Any qualitative difference between the source and the receiver will always be distortion between the intended message and the received message.
It is not an accident that we misunderstand each other; it is a miracle that we ever do. Our personal decoder is the home of all our prejudices and preferences. That is where our categories (belief systems) and desires live and work. Our decoder is the filter that distorts incoming messages that do not fit into our existing beliefs (categories). Another scientific breakthrough since the 1950s was the discovery of the hologram. The insight gained here is that information can be stored in ways yet to be discovered, and unbelievably large amounts of information can be stored in extremely tiny spaces. Before you were born, your entire body including the size of your muscles, the number of hairs on your head, the shape and size of your teeth, the color of your eyes, the number of cells in your brain, how you will age, and, barring accidents, when you will die were all stored in your RNA/DNA in a space so small it cannot be seen with the naked eye. If you take a holographic 8 x 10-inch film and cut off one corner a slice smaller than l/l6 of an inch, it will still contain the same details as the 8 x 10-inch picture. Information theory, cybernetics, and holographic theory do not support the Aristotelian view of the world. When we say "Our world is changing," what we really mean is that we are getting a different view of it. And this is what the approach in this book is about: getting a different, more accurate view of what the market actually is and how it operates. We do this by examining five dimensions of the market. These dimensions could be compared to looking through five different windows, each of which adds to the total picture. These dimensions are:
1. The fractal (phase space).
2. Momentum (phase energy).
3. Acceleration/Deceleration (phase force).
4. Zone (phase energy/force combination).
5. Balance line (strange attractors).
Each of these different dimensions gives unique insight into the underlying structure of the market and its behavior. The recent advent of extremely powerful computers has now permitted us to get more specific insights into this world view that we now label as the Science of Chaos. If you knew everything there is to know about the Science of Chaos and you decided to give it a name that would confuse the most people, you probably would choose the name Chaos. Chaos is not craziness and it does not mean randomness; rather, it is an insight into a much higher form of order. (We will examine this new science, and how it can improve our trading, in the next chapter.)
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WHY GORILLAS DON'T PROCREATE IN A CONTROLLED ARTIFICIAL SETTING AND WHAT THAT HAS TO DO WITH THE MARKET.
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