I was at an entrepreneurship workshop conducted by Peter B. Zaboji. Peter was a professor at Insead and also a corporate restructuring expert. He turned around a loss making company with 10,000 people taking Tenovis to management case books. Peter’s aim was to implant the entrepreneurship fire in his audience and assist entrepreneurs with a road map towards private equity. Peter came with an elite list of speakers. Piroska Zoli (a silicon valley netpreneur) and Imre Hild (a financial innovator from Hungary) were two of the seven speakers.

Ideas and cases

Coming from an economic background I could relate more to Imre’s idea. He found an opportunity selling LARE (Life Annuity for Real Estate) to a selected Hungarian audience. LARE is now a part of OTP (Hungarian Bank). Imre saw the opportunity, a need for a financial instrument for war widows, who had no one to hand over their real estate assets and hence the need to commoditize it in their life. For a fixed annuity, the widows would sell their land to the bank. The idea pushed Imre in the list of successful financial innovators for the region.

Peter consistently emphasized on looking at the glass half full rather than the half empty highlighting the marketing genius of Dietrich Mateschitz, an Austrian entrepreneur. During his visit to Thailand in 1982 he discovered that Krating Daeng (a local drink) that helped to cure his jet lag. Red Bull was born.

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Author: Mukul PAL | Date: 29 April 2010 | Comments (0)

Categories: Patterns and Proportions

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Time Triads recreating head and shoulder fractals is a step closer to rewriting the Elliott Wave Theory.

We have talked about head and shoulder on prior occasions. We have also mentioned that time is a head and shoulder. The time pattern was first illustrated by Tony Plummer in his book. Plummer mentioned that a stylized pattern of time was a good example of fractal geometry.

Tony Plummer’s Stylized Time Pattern

He did not give a formal pattern proof of creation for the stylized pattern. Where did the stylized pattern come from? How could it be seen across time frames? And how was it fractalled?

Orpheus Introduces TIME TRIADS

Here we have taken the Orpheus Time Triad unit and reworked on it to create the stylized pattern Plummer first illustrated in his book. The stylized pattern looks like a head and shoulder. Time Fractals, Time Triads, Time Arbitrage, Econohistory, Performance Cycles are terms coined by the author in Jan 2009.

The idealized time triad structure is made of equilateral triangles. There are three equilateral triangles, making a larger triangle and so on. Time subdivides in three and multiplies in three. What is with the formation? First and foremost: Head and Shoulder are three peaks, a large peak centered around two smaller peaks. Head and shoulder pattern is the time triad i.e. three triangular peaks. Did you ever think why a day has four prices, the open, the high, the low and the close? We just take it as standard. Ok! it does look logical to have the O-H-L-C, but the interesting part is how this classification divides the trading session into three parts. There is a part with the open and high, high and low, low and close. The three triangles of head and shoulders are there. Market literature is full of pattern ideas from human anatomy. It’s not that just chance that we find similar patterns in markets like we find in human anatomy. We find head and shoulders in markets just like we see it in human body is because time touches anatomy, the same way it transforms price.

Nature unlike markets doesn’t just move in the first Cartesian quadrant with positive x and y axis values. Nature moves in all dimensions, in free space. Fabian Helge von Koch (1870 – 1924) was a Swedish mathematician who gave his name to the famous fractal known as the Koch snowflake, one of the earliest fractal curves to be described. The Koch snowflake (or Koch star) is a mathematical curve and one of the earliest fractal curves to have been described. It is based on the Koch curve, which appeared in a 1904 paper titled “On a continuous curve without tangents, constructible from elementary geometry”. The Koch curve starts from a Triangle and in the second iteration divides each side of the triangle into a head and shoulder form. The iterations are repeated and this creates the Koch curve. Koch curve is a zooming head and shoulder bombarding in your eyes like a moving spatial star field.

The Head and shoulder pattern can even rewrite the Dow Theory and even explain the Elliott Theory. Elliotticians are known to famously quote that there are few rules in markets, mainly the EWT (Elliott Wave Theory) works on guidelines. The only two rules in the long standing Elliott Theory is that the 3rd wave is never the shortest of the three impulsing waves 1, 3, 5. What Elliott unknowingly said was that the three up legs in a five legged market structure have a bump or a head, simply putting the middle part of a market fractal is larger than the other two. The 3rd is never the shortest because of the Head and Shoulder. The pattern of time rules the Elliott fractal. There is another rule of Elliott that the 2 wave does not make a new low below the low of 1. The head and shoulder pattern of time also makes higher lows and not lower lows. A higher degree of time does indeed make more significant lows than its small degree counterparts.

So what did we do with the Time triads? We gave the smallest triangle a size of 1 unit (X). 3 units made a larger triangle (3X) and nine units made the larger triangle (9X). At all times these unit lengths are adding or subtracting. Assuming there is no translation. That is largest time is not effecting the smaller time. Putting simply the bear market is the same in potential and scope as the bull market, the markets will behave ideally, losing all the gains it made, a classic cycle.

Doing an aggregation of three degrees viz. X, 3X and 9X, we reached the Head and shoulder pattern. And as we added a higher degree head and shoulder fractals started to form.

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Author: Mukul PAL | Date: 14 March 2010 | Comments (1)

Categories: Fractals, Patterns and Proportions, Time Triads

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A holyhedron is a polyhedron with each face containing at least one polygon shaped hole. The boundaries of the holes share no point with each other or the boundary of the faces. For example, consider a solid cube with its 6 faces. Next, imagine thrusting a pentagonal rod through 1 face, all the way through the cube to the other side to produce (for example) a pentagonal tunnel, and only 2 of those 11 faces have holes punched in them. Each time we punch a hole, we are creating more faces. The immense challenge to finding a holyhedron is to make the holes such that they eventually punch through more than one face to reduce the number of faces that have no holes.

The holyhedron concept was first introduced by Princeton mathematician John h Conway in the 1990′s, who offered a prize of &10,000 to anyone who could find such an object. He also stipulated that this cash reward would be divided by the number of faces in such an object. In 1997, David W Wilson coined the word holyhedron to indicate a hole filled polyhedron.

Finally, in 1999, American mathematician Jade P. Vinson discovered the world’s first holyhedron specimen with a total of 78,585,627 faces. John Conway has offered a prize of $10000 divided by the number of faces, so this one should be worth approximately $20.3252.

(The Math book, Clifford A. Pickover, PhD Yale)

Domnita and me are a part of Cluj painting club. Last evening we were at the 5 year anniversary. We as capital market researchers don’t make the group as diverse as Dr. S. Istvan. 75 paintings were exhibited. The one above was painted by Istvan. When I saw it, I told him it was a holyhedron. It might look like coincidence but the mathematics we know is a lot about patterns and structures. If there is something mathematical, you will find it in nature. This is why John’s prize money was up for grabs, the moment it was announced. Why is nature mathematical? Because nature is proportional. Nature has all proportions, infinitesimally large and infinitesimally small. Time does not destroy the proportion of nature, even when nature ages, grows and decays. Then why no credit for Time in assisting nature to retain its proportion? Does it not sound intuitive that because Time is proportional, nature mirrors it and mathematics proves it. Time created nature and humans invented mathematics to study and solve the beautiful holyhedron.

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Author: Mukul PAL | Date: 31 January 2010 | Comments (2)

Categories: Patterns and Proportions

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The omnipresent head and shoulder is the pattern of time.

Human life is about celebration, which is the act, process of showing appreciation, gratitude and/or remembrance, notably as a social event. We celebrate various aspects in, about, around our life. Directly or indirectly celebration is about time, passing time. Conventional belief does not give a shape or ascribe a form to time like a beautiful, colorful surface that can be the reason for party. It might sound weird praying around a beautiful statue of time placed at the centre while revelers drum and sing. This is what we do every day. This is the reality. Every moment of our life, unknowingly we just worship and enjoy the beauty of time.

Head and Shoulder is the pattern of time. It’s the most beautiful part of the human body. Nature is replete with head and shoulder patterns, market technicians would not debate but the most visible pattern in markets is the Head and Shoulder formation. Every natural pattern that we will ever see or study in our life is connected with the head and shoulder pattern of time. Romania has the world’s largest Bear population. Hunting down bear’s is legal and stuffed head and shoulder rugs and wall hangings of bear families are elite pastimes. There is a bear dance made at the start of the winters when young men adorn the same head and shoulder bear clothing, beat drums and blow whistles.

What is with the formation? First and foremost: Head and Shoulder are three peaks, a large peak centered around two smaller peaks. Head and shoulder pattern is the time triad i.e. three triangular peaks. Did you ever think why a day has four prices, the open, the high, the low and the close? We just take it as standard. Ok! it does look logical to have the O-H-L-C, but the interesting part is how this classification divides the trading session into three parts. There is a part with the open and high, high and low, low and close. The three triangles of head and shoulders are there. Market literature is full of pattern ideas from human anatomy. It’s not that just chance that we find similar patterns in markets like we find in human anatomy. We find head and shoulders in markets just like we see it in human body is because time touches anatomy, the same way it transforms price.

Nature unlike markets doesn’t just move in the first Cartesian quadrant with positive x and y axis values. Nature moves in all dimensions, in free space. Fabian Helge von Koch (1870 – 1924) was a Swedish mathematician who gave his name to the famous fractal known as the Koch snowflake, one of the earliest fractal curves to be described. The Koch snowflake (or Koch star) is a mathematical curve and one of the earliest fractal curves to have been described. It is based on the Koch curve, which appeared in a 1904 paper titled “On a continuous curve without tangents, constructible from elementary geometry”. The Koch curve starts from a Triangle and in the second iteration divides each side of the triangle into a head and shoulder form. The iterations are repeated and this creates the Koch curve. Koch curve is a zooming head and shoulder bombarding in your eyes like a moving spatial star field.

Thomas Bulkowski wrote a book ‘Encyclopedia of Chart Patterns’. The book explains and classifies many patterns, their structure and probability of success and failure. This is what the author says. “Of all the chart patterns in this book, the head and shoulder is perhaps the most popular. This stems from its reliability, performance and easy identification”. A very popular book among technicians, featured in many research journals and even in the MTA’s (Market Technicians Association) Technically Speaking newsletter too. Even if a group of technicians may contest that markets are not fractals but individual patterns, the fractal school of thought is academically weighted and more scientific. So if we assume that markets are fractalled than all of Bulkowski’s classifications can be explained by one pattern and that is the head and shoulder. Head and shoulder is the building block for all diamond tops, double tops, triple tops etc.

The Head and shoulder pattern can even rewrite the Dow Theory and even explain the Elliott Theory. Elliotticians are known to famously quote that there are few rules in markets, mainly the EWT (Elliott Wave Theory) works on guidelines. The only two rules in the long standing Elliott Theory is that the 3rd wave is never the shortest of the three impulsing waves 1, 3, 5. What Elliott unknowingly said was that the three up legs in a five legged market structure have a bump or a head, simply putting the middle part of a market fractal is larger than the other two. The 3rd is never the shortest because of the Head and Shoulder. The pattern of time rules the Elliott fractal. There is another rule of Elliott that the 2 wave does not make a new low below the low of 1. The head and shoulder pattern of time also makes higher lows and not lower lows. A higher degree of time does indeed make more significant lows than its small degree counterparts.

Bulkowski talks about head and shoulder failure. Constance Brown talks about the same thing “indicator failure is a reality”. Even if we come to the source of life and market patterns and start studying patterns of time, we will still face failure, as the very nature of fractal is unending. Time fractal can never be understood beyond a certain time. This endless overlap and mixing of head and shoulder patterns in nature and markets at all degrees create the beauty of nature. Look around yourself in nature and you will see your environment full of curves reflecting the dynamics of the head and shoulder of time.

The head and shoulder of time drives the 80-20 principle. We will talk about it ahead why the head is larger the shoulders. A friend was expressing his surprise at how performance cycles were working and commented that God must indeed be a mathematician. The head and shoulder of time creates fractals and without fractals there would be no life and no need for mathematics. God just created time and plucked its string, everything else followed.

TIME.TRIADS.120909

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Author: Mukul PAL | Date: 12 September 2009 | Comments (2)

Categories: Patterns and Proportions

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80/20 is a globally used term and another name for the Pareto principle. Though initially used to illustrate wealth allocation 80/20 was found to be a verified law (power law).

The author of the book 80/20 principle, Richard Koch explains in brief history of the principle how Vilfredo Pareto’s (Father of microeconomics) idea became widely know when Joseph Moses Juran, one of the gurus of the quality movement in the twentieth century, renamed it “The rule of the vital few”. In his 1951 tome “The quality control handbook”, which became hugely influential in Japan and later in the west, Juran separated the “vital few” from the “trivial many”, showing how problems in quality could be largely eliminated cheaply and quickly, by focusing on the vital few cases of these problems. Thanks to this new attention to quality control, between 1957 and 1989, Japan grew faster than any other industrial economy.

20% of inputs generate 80% of the output. 20% of causes create 80% of consequences. Effort and reward are not linearly related. This is why 20% of effort drives 80% of the results. Does it sound familiar? 80% of stock market capitalization and trading volume comes from 20% of the stocks. This was the reason indices were created. There was no point focusing on the majority of the stock market listing, if only a few were moving the market. 20% of the time is when excitement (euphoria, fear) hits 80% peaks. 80% of the wealth is owned by 20% of the people. 20% of a company’s clients create 80% of the income. Only a part of your portfolio will generate real winners. Only a few clouds create the most rain. Few vegetables are the most nutritious. We now have 80/20 thinking, 80/20 framing system, 80/20 housing, 80/20 initiative etc.

This should have lessons for all analysts. 20% of your indicators can do 80% of the job. Over analysis is necessarily not better. What about traders? 80% of trading profits come from 20% of transactions. 80% of trading time is about bad fills and hard work and 20% is the real kill. This is the same thing about strategies. 80% of strategies are old wine in new bottles and noise. Just 20% are the real ideas. Same is with news. 20% news matters, 80% is noise or 20% is quality and rest is quantity.

In his other book, ‘the 80/20 individual’, Koch talks about the 80/20 individuals causing the revolution that creates the new economy and brings down the old capitalism. A corporate system that still revolves around management hierarchy rather than individuals and a stock exchange that rewards passive investors is weak and redundant. According to the author the next two decades, the economy could stop following the old pattern of managerial capitalism and corporations could revolve around their key individuals. When this happens the economy will change abruptly and radically. We will witness a huge wealth transfer to 80/20 individuals and away from institutions to entrepreneurs and away from savers (people who save money and invest in stock market, a savings account or another financial institution. This Koch calls as the shift from capitalism to individualism.

We agree with a part of the author’s argument and prefer working as partners at Orpheus rather than as employer and employees. However, a part of Koch’s debate is weak. He assumes many aspects and does not even mention cyclicality. The road is not about capitalism to Individualism (as Koch reiterates). The two already coexist as two polar parts of the same cycle. Individualism is an offshoot of the system.

Koch’s 80/20 creative individual is inefficient like rest if he does not understand cyclicality. Great ideas also need timing of an economic cycle. One can’t have brilliant ideas, a generation ahead of its time. Ideas incubate and get accepted in time and like everything unfortunately or fortunately need a market. An idea without a market to value them is not valuable. Open source is a great idea that is commercially viable. Red Hat is a part of S&P500. Koch assumes that markets may come to an end because of the rise of the 80/20 individuals. Individuals create institutions and to see them separately is tough. The author also assumes 80/20 individuals have a complete set of character list. They are smart individuals who don’t have emotional flaws or greed element. The aspect of 80/20 individuals jumping ship, smart companies buying back and going private was always a well exploited opportunity. What if cash becomes king and stock market becomes unimportant? Here to the author fails to realize that stock markets move from cash and sub cash value to the other extreme cyclically. 80/20 individuals going private can’t assume and ignore the visibility stock market gives, the amount of information it discounts, price discovery etc. Koch’s 80/20 individuals are not time cycle literates. They just focus on growth and don’t understand that value and growth moves in cycles.

Personality development books are easier to write. Teaching people how to read and interpret time cycles of markets or economy is tougher. The question Koch does not answer is how to teach the 80/20 individual to be in the 20% right time? Why does 80/20 exist in the first place? Is 80/20 a dynamic number or something static? Does 80% change and decrease and 20% change and increase? Sentiment surveys have illustrated how market psychology moves from 80% bulls to 20% bulls. The sentiment of capitalism like an individual’s mood is cyclical. Pair performances prove to us that an 80% outperformer can also underperform.

80/20 is beautiful because it’s a ratio beyond equality. Proportion is what creates nature. Imagine a tree with perfectly equal leaves. Or think about how a human would look if he had perfectly equal limbs. Would it be interesting? Fractals are 80/20 and like rest of 80/20 ratios, cyclical. We are so tied to the underlying time and its cyclicality that we just can’t shake it off. In a recent article in Scientific American “Do really people walk in circles?” the researcher proved that even though walking in a straight line seems like a very simple thing to do, it’s actually very complicated. The results suggest that without visual or auditory clues, people would only end up traveling a total of 100 meters from their starting point regardless of the time they are given to wander. Amazing isn’t it? Search for the article and look at the embedded video. You will be surprised to see how disoriented we are. 80/20 individualism is no fun if we don’t know that time fractals and time cycles are the reason why disproportionality of 80/20 exists in the first place. Even a genius can learn a lot from stock markets. The first thing he will lose is the illusion of his genius, as the cycle turns.

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Author: Mukul PAL | Date: 22 August 2009 | Comments (0)

Categories: Patterns and Proportions

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Euclid’s geometry is a model for everything, including stock markets

The Romans developed the Roman hand abacus. It was the first portable calculating device. It greatly reduced the time needed to perform the basic operations of Roman arithmetic using Roman numerals. However, there was a problem regarding complex multiplications and storing previous calculations. The Hindu (later called as Arabic numerals) number place value system resolved this problem.

How Aryabhata did it with a symbol like zero in the 3rd century BC could be linked to his sense of proportion. Euclid a century later created a subject built on proportion. Geometry is about proportion, a pure science studying symmetry. Euclid’s Elements is the most successful textbook in the history of mathematics. His system of rigorous mathematical proofs remains the basis of mathematics after 23 centuries, classifications and super classifications later. His mathematical proportion rules nature, science, life, economics and markets like nothing else.

The first example of proportion can be seen in the animal kingdom, the larger the size, the smaller the number. Whales, Tigers and insects, the number of animals in one class falls as the size of the animal decreases. There are much more insects compared to tigers, and more tigers compared to whales in the world. The language we use to communicate is also proportional. The most common word in the human language is spoken twice as much as the next most popular word. The frequency keeps decreasing mathematically as the popularity of a certain word decreases. Information that we use as news is also proportional. The number of the most popular news stories, films, or soap operas we watch are proportionally linked to the other news, films and soaps. Population distribution, intra city or inter city is mathematically spread. Wealth allocation is also proportional. The larger portion of the wealth of any society is owned by a smaller percentage of the people in that society.

The World Wide Web is proportional. A study of the web’s structure, reveals that it isn’t the fully interconnected network that we’ve been led to believe. The study suggests that the chance of being able to surf between two randomly chosen pages is less than one in four. Researchers have analyzed 200 million web pages and 1.5 billion hyperlinks. Their results indicate that the web is made up of four distinct components. And however, you may divide or slice the web, based on stock market based websites, based on entertainment links, based on region or religion; you will get the same structure of four components. The number of births or deaths highlights proportion again. The universe till the sub atomic level is connected with the same proportion.

What we thought was mystical; the divine proportion is a part of this large proportion we are talking about here. Seen in pyramids, in prices, in religion, in science, the divine proportion has been espoused by scientists, mathematicians, historians etc. The Fibonacci series is no magic; it’s a statistical series, proportional.

Our misconceptions as human beings are also proportional. What behavioral finance calls as overestimation of skills is nothing but the same proportion at work. 90% of the people rate themselves in the top 10% of their class. Proportion is also the reason we as human beings herd. If we have proportion in behavioral errors then it’s not surprising that we proportionally herd to buy and sell, invariably at the wrong time.

Demand and supply is proportional, reported macro economic data is proportional, market and prices are proportional. Even our favorite and popular tools of market analysis are proportional. Fundamental analysis has a sizeable content on ratios. Don’t be shocked, but it’s true that price/book, prices/sales, prices/earnings are ruled by the same proportion. Technical analysis is also about proportional patterns. Any statistical time series lifeless or with life has a proportion. A random toss of a coin will lead us to the same proportion. Mandelbrot’s clustering and Taleb’s randomness is also proportional.

The proportion in mathematics, gives rise to patterns, symmetrical patterns and natural patterns. The Ulam spiral is a simple method of graphing the prime numbers that reveals a pattern. It was discovered by the mathematician Stanisław Ulam in 1963, while he was doodling on scratch paper at a scientific meeting.

Now that we understand that proportion is nature’s law, we should spend some time comprehending the challenges of proportion. Because it’s ubiquitous, humans don’t give it that importance. A majority of us will also find it tough to believe that everything is mathematically linked. Our day to day life suddenly loses all its complexity. There is so much redundancy in the system, which can never be taken out even if with the greatest depression. We can never come to accept how simple it all is. Humans are unable to see the degree of proportionality i.e. the range of proportions, top down proportionality of everything. Only a few can quantify proportion in a workable model that gives trading or investing signals. It’s strange but we use them every minute of our working day, even when we are sleeping, but still don’t see them.

Proportion was always relative, a ratio. The top market, top decade, top week, top sector or worst stock is all about comparisons, a ratio. There is nothing like absolute proportion. Analyzing anything needs a sense of proportion. We break aspects or parameters to analyze them. Constructing or reconstructing is about proportion, whether it’s architecture, philosophy, culture, markets anything.

Life would be random, if God would throw a dice. He does not have time for doing this. He gave us proportion and ability to think and question. Are all these proportions linked? Whether what Euclid did was a complete model for and of everything? Is it so simple?

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Author: Mukul PAL | Date: 04 April 2009 | Comments (3)

Tags: divine proportion, Euclid, random, time

Categories: Patterns and Proportions

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