Market Analytics

Market Analytics

F=MA and You Can’t Push on a Rope…

Loosely quoted, a Sir Isaac Newton gave the world some guiding principles that with a little imagination can be applied to many fields of endeavour.

Every body perseveres in its state of being at rest or of moving uniformly straight forward except insofar as it is compelled to change its state by forces impressed.

Every body under the sole action of its innate force moves uniformly in a straight line indefinitely unless something extraneous hinders it.

A change in motion is proportional to the motive force impressed and takes place along the straight line in which that force is impressed.

You may be wondering why I point out these basic facts of Freshman Physics in the context of a discussion of Market Analytics. The answer to this is that it is my intention to examine whether the simple concepts of Physics 101 can be applied to provide actionable indications of short term market movements.

I expect that fellow travelers might accept the concept that the markets move in response to supply and demand or liquidity or lack of liquidity as a basic fact that is worth exploring as true.

Based on this these discussions will examine the premise that:

  • Some measure of supply, demand and/or liquidity may be correlated to a “Force” that impacts the price movement of a financial instrument
  • Some measure of the “Mass” of financial instrument might be correlated to the quantity outstanding or available supply of that instrument
  • Based on a relationship between the “Force” and the “Mass” that some “Acceleration” of price (“Position”) might exist that can be actionable over some timeframe

The method of investigation that will be followed is to identify measurable datasets that might be candidates for the roles of “Force”, “Mass”, “Position” and “Acceleration” and to generate relationships between these various datasets that can be displayed in a Companion Site to this and monitored to determine if there are correlations between these the price movements of financial instruments that might be actionable.

Perhaps nothing will come of it, but it will be an interesting journey nevertheless.

Towards this end “Your Humble Trail Blazer” offers this bullet point summary of Physics 101.

  • There is a concept called “Force”
  • There is a concept called “Mass”
  • There is a concept called “Position”
  • In the absense of a “Force” an object will remain in motion with a constant “Velocity”
  • In the presence of a “Force” and objects “Velocity”" will change by a time dependent amount called “Acceleration”
  • There is a concept call “Work” that is the “Force” applied to an object times the distance the object has moved while that “Force”" is applied
  • There is a concept called “Power” that is the amount of “Work” done per unit of “Time”
  • There is a concept called “Momentum” that is the “Mass” times the “Velocity”
  • There is a concept called “Kinetic Energy” that is 1/2 the “Mass” of the object times the “Velocity” of the object squared
  • “Work” performed on an object results in a change of the object’s “Kinetic Energy” by the amount of “Work” performed
  • The “Kinetic Energy” of an object is the “Work” an object can perform as a result of it’s “Velocity”
  • There is a thing called “Potential Energy” that is the “Work” an object can perform as a result of it’s “Position”
  • For the purposes of this discussion, “Energy” is conservered. In other words the sum of the “Potential Energy” and the “Kinetic Energy” remains unchanged.
  • For now at least we will consider only movement in one “Dimension”. This may be expanded later if the investigation leads to this expansion.

If you want to get started on your own, there is an interesting framework at Kahn Academy to support Natural Simulations and as one might expect they have a section related to Sir Isaac Newton’s Laws of Motion.

There is a Latin phrase “nanos gigantum humeris insidentes” that roughly translatesto “Standing on the Shoulders of Giants” and it is the work of many “Giants” that will guide this current investigation.

So that’s the starting point …. and of course …. you can’t push on a rope.

Namaste.