FRACTAL FINANCE  |  MAY 2003

Making Sense Of Fractals by Erik Long

Making Sense Of Fractals by Erik Long What is chaos? Here’s a tool you can use to trade on the cutting edge of chaos and fractal theory. haos is evident just about everywhere: in lightning, weather patterns, earthquakes, and financial markets, to name only a few. It may seem to appear in a random fashion, but it doesn’t. In a nutshell, chaos is a nonlinear, dynamic system that appears to be random but actually is a higher form of order. When you are studying the markets, complexity is the point at which the transition to chaos takes place. That should be the focus of your interest. Order and randomness exist simultaneously, and this gives us a degree of predictability. Social and natural systems, including private, governmental, and financial institutions, all fall within this category. People design these complex systems only to find those systems take on a life of their own. Each of these networks is sustained by complex feedback loops that reenter the system at unpredictable points in their cycles. This little-understood abstraction causes people to go about their business bewildered by the very systems they helped create.

by Erik Long