The Science of Chaos: Handling of New Information

The Science of Chaos has proven that material traditionally neglected by classical science as being random behavior and/or unimportant measurement errors may be the most important causative factors in our search for understanding. It pointedly addresses areas that cannot be navigated by classical concepts. It specifically concentrates on what scientists formerly labeled as Chaos. Chaos is one of those unfortunate misnomers that describes more of what IT IS NOT than what IT IS. Chaos is not random behavior. It is a much higher form of order. Instead of thinking of your usual connotation of the word Chaos, substitute instead the more accurate description: NEW INFORMATION. From now on, every time you hear the word Chaos, translate it in your mind to new information.

The universally most common and most prejudiced way to handle new information is to fit it into old categories. We have done this so often that we consider it either the natural thing to do or, more commonly, the ONLY way to handle it. Upon receiving new information, our usual first approach is: "What is it like? It reminds me of ...." According to psychologists, anytime you feel either overwhelmed or bored it is because you are attempting to fit new information into old categories. (Aha! What are you doing with this information at this moment?) Think about that when you are in the market and feeling either bored or overwhelmed. Our first impulse when handling new incoming information is to organize it in some way. You are in the process of organizing this material that you are reading. Once anything, material or otherwise, is organized, it takes on a life of its own. When it takes on this life, its primary purpose and goal is survival. As this chapter is being written, there is a national outcry to do away with the IRS. What do you think the chances are? Before that happens, there will be blood in the street. For any organization, from the most complex to the very simplest, the first goal is to survive. The four largest money gatherers and distributors in the world are:

1. War.
2. Medicine.
3. Insurance.
4. Religion.

These four institutions control more money than the most powerful country in the world. Why do they enjoy this position? Because they have to do with the survival of our most personal organization--ourselves. The purpose of war is to break things and kill people. The purpose of medicine is to repair those who aren't dead, so that they can fight again. The purpose of insurance is to take care of those left by the dead. The purpose of religion is to take care of those who do die. These institutions have the most money because they all have to do with our personal ultimate survival. The real reason that most traders lose consistently is that they are fitting new information into old, inappropriate categories. If our usual way of handling new information is to fit it into old categories, what is the alternate choice? Let the new information organize itself. When that happens, we have a trance-ending experience of a higher form of order. The question then is: How is this done in trading the markets?

The simplest organization I can think of is a hydrogen atom. It contains one proton made up of three quarks and one electron. It just doesn't get much simpler than that. Trillions of these gaseous atoms are floating around in the air in the room where you are sitting. Their first instinct, just like yours and mine, is to keep their current logic organization intact. They seek to remain hydrogen atoms. In this room, there are also trillions of oxygen atoms. They are much larger and more complex, and they, too, seek to keep their current organization intact. As both of these gases circulate and bounce around the room, they occasionally will come into each other's gravitational field (Figure 2-1). This provides new information for both of them(the gravitational pull of the other). And even though they are infinitesimally small and are inorganic, they make what could only be called an intelligent choice--whether to keep their old organization as independent atoms or to permit the new incoming information to change their organizational structure. They keep their current structure 99.99999 percent of the time. About 0.00001 percent of the time, they let this new information (the gravitational pull of the other atom) reorganize their approach to the world. When that happens, these atoms TRANCE-END their old limitations and become something entirely new, with all new characteristics and a totally different organization. They have become H20-- water. Water has virtually no characteristics that are shared by the two former gases. They were compressible, light as air, invisible to humans and so on. Water is not compressible, is heavier than air, is visible, and exists in different states (solid, liquid, gas). The point here is that there are only two ways of dealing with new information:

1. Massage (distort) it so that it will fit into an old organization.

2. Permit the new incoming information to organize itself into a new, different, and unpredictable organization.

Therein lies the difference between a successful approach to trading and the more common losing approach. Traders who let the new incoming information organize their trading will be in sync with the market and thereby will be winners. Attempting to fit new incoming information (Chaos) into old categories distorts both the information and the trading. The surprise that the Science of Chaos found was that there is an underlying structure to what seems, on the surface, to be random behavior or information.

(Excerpt from New Trading Dimension: How to Profit from Chaos)