DEFINITION of 'Chaos Theory'
A mathematical concept that explains that it is possible to get random results from normal equations. The main precept behind this theory is the underlying notion of small occurrences significantly affecting the outcomes of seemingly unrelated events.
Also referred to as "nonlinear dynamics".
INVESTOPEDIA EXPLAINS 'Chaos Theory'
Chaos theory has been applied to many different things, from predicting weather patterns to the stock market. Simply put, chaos theory is an attempt to see and understand the underlying order of complex systems that may appear to be without order at first glance.
Related to financial markets, proponents of chaos theory believe that price is the very last thing to change for a stock, bond, or some other security. Price changes can be determined through stringent mathematical equations predicting the following factors:
1) A trader's own personal motives, needs, desires, hopes, fears and beliefs are complex and nonlinear.
2) Volume changes
3) Acceleration of the changes
4) Momentum behind the changes
Chaos theory is highly controversial and extremely complicated.

Darvas Box Theory
A trading strategy that was developed in 1956 by former ballroom ... 
Residual Standard Deviation
A statistical term used to describe the standard deviation of ... 
Kappa
One of the "Greeks," kappa is the ratio of the dollar price change ... 
Regression
A statistical measure that attempts to determine the strength ... 
Error Term
A variable in a statistical and/or mathematical model, which ... 
Random Walk Theory
The theory that stock price changes have the same distribution ...

What is the chaos theory?
The chaos theory is a complicated and disputed mathematical theory that seeks to explain the effect of seemingly insignificant ... Read Full Answer >> 
What is the difference between economies of scope and economies of scale?
Economies of scope and economies of scale are two different economic concepts used to help cut a company's cost. Economies ... Read Full Answer >> 
How is productivity calculated?
Productivity measures the efficiency of a company's production process. It is calculated by dividing the outputs produced ... Read Full Answer >> 
What is the role of agency theory in corporate governance?
Agency theory is used to understand the relationships between agents and principals. The agent represents the principal in ... Read Full Answer >> 
What's the difference between agency theory and stakeholder theory?
Agency theory and stakeholder theory are both used to understand and explain various types of relationships in business. ... Read Full Answer >> 
What is a diseconomy of scale and how does this occur?
In economics, diseconomies of scale describes the phenomenon that occurs when a firm experiences increasing marginal costs ... Read Full Answer >>

Economics
Understanding Horizontal Integration
Horizontal integration is the acquisition or internal creation of related businesses to a company’s current business focus. 
Economics
The Nash Equilibrium
Nash Equilibrium is a key concept of game theory, which helps explain how people and groups approach complex decisions. Named after renowned mathematician John Nash, the idea of Nash Equilibrium ... 
Investing Basics
The Basics Of A Financial Analysis Report
Running financial analysis on a company or industry is a key skill every investor must learn and understand how to undertake without which an ineffective financial report and investment recommendation ... 
Economics
How Education And Training Affect The Economy
Education and training benefit not only the worker, but also the employer and the country as a whole. 
Active Trading
Viewing The Market As Organized Chaos
Find out how a cat and a ladybug prove markets are both random and efficient. 
Active Trading
Qualitative Analysis: What Makes A Company Great?
To understand the qualities that make for a great company, investors must dig deep into "soft" metrics. 
Personal Finance
Evaluate Your Investments With SWOT Analysis
Using this method, investors should be able to focus on a company's advantages and vulnerabilities. 
Professionals
What It Really Takes To Succeed In Business
It takes a lot more than an Ivy League education to become a CEO. 
Markets
Using Porter's 5 Forces To Analyze Stocks
These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance sheet. 
Professionals
5 Ways To Be Irreplaceable At Work
Use these tips to position yourself as an indispensable employee and increase your job security.