Investopedia

Continue to Site »

Chaos Theory

Filed Under »
Dictionary Says

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 "non-linear dynamics".
Investopedia Says

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.

Articles Of Interest

  1.

    What is the chaos theory?

    The chaos theory is a complicated and disputed mathematical theory that seeks to explain the effect of seemingly insignificant factors. The chaos theory name originates from the idea that the ...

  2. 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 ...

  3. 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.

  4. Viewing The Market As Organized Chaos

    Find out how a cat and a ladybug prove markets are both random and efficient.

  5. Qualitative Analysis: What Makes A Company Great?

    To understand the qualities that make for a great company, investors must dig deep into "soft" metrics.

  6. Evaluate Your Investments With SWOT Analysis

    Using this method, investors should be able to focus on a company's advantages and vulnerabilities.

  7. What It Really Takes To Succeed In Business

    It takes a lot more than an Ivy League education to become a CEO.

  8. 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.

  9. 5 Ways To Be Irreplaceable At Work

    Use these tips to position yourself as an indispensable employee and increase your job security.

  10. 7 Ways To Be More Productive At Work

    These tips will not only make you a better employee, they'll make you a healthier person.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  2. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  3. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  5. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  6. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
Trading Center
Array ( )