Posted Feb 18, 2015 by Martin Armstrong
1) Youve been talking alot lately about the “energy model’, i think alot of us are quite intrigued and curious about this. Could you perhaps elaborate more about this model, and for the more technically savvy folks, could you delve into a little more detail about what it measures and how it does this? I am certain this is not a simple price action oscillator.
2) You mentioned about a transverse wave, expansion and contraction in one of your recent blog posts, compared to fixed waves of benchmarks. Is this transverse wave the ECM? or is there some other wave you are referring to? The long time readers and fans of your write ups would love to have you elaborate in some detail about your reference of the transverse wave in the markets.
ANSWER: Long established clients know while I was a trader, I went through computer engineering in the good old days when you have to do both hardware and software. So I took those skills and applied them in trading. The boys on Wall Street only knew I had a physics background so they started higher people with those degrees. They failed to comprehend that writing a program is just learning how to read and write. You then have to have some knowledge of what you are going to write about.
I applied physics far beyond what most people would even do. My view was always I had no idea so lets just see what emerges. Approaching the markets as a child open to learn rather than trying to prove a theory is a huge difference. The former you are opened-minded and latter you will learn nothing.
I realized as a trader, that for a model to hold up, I had to test it under all circumstances – not just back to 1971. Those who won Nobel Prizes like Black & Scholes never had the database to prove their formula would not meltdown in a panic. That is why Long-Term Capital Management collapsed in 1998.
I realized I needed data. So I spend vast sums of money to reconstruct the world monetary system from inception. I uncovered how empires truly rose and fell crumbling into dust. The real eye-opener was the fact it was a crash in burn not a long slow gradual decline.
I applied physics on the assumption that the laws of nature applied to everything. What began to appear before my eyes was indeed a key building block upon which everything was constructed from planetary movement to the rise and fall of empires and markets. There was a core element and that wave motion and TIME. Now I was into the realm of Newtonian Physics and the father of cycle theory, Christiaan Huygens (1629-1695) who was a Dutch mathematician, astronomer, and a physicist. He has truly been lost to history, perhaps overshadowed by Isaac Newton (1642-1727) and Albert Einstein (1879–1955), yet whose work has had a long lasting impact upon society to this very day.
Huygens’ discovery was fundamental. How does ENERGY actually move? This might not sound like much at first. Nonetheless, the natural assumption that everyone seems to make in that ENERGY moves in a straight line. What if that is wrong! What if ENERGY moves more like a side-winding snake that moves rapidly, but it takes less energy for it to move in this fashion than in a straight line. When you stop and think about life in detail, you realize that you also do not function in a linear fashion. You need ENERGY to sustain life by eating and drinking in a cyclical manner, and you need to sleep to restore that ENERGY. We do not move in a constant steady straight line either.
Huygens is the man that discovered that light itself moved like that side-winding snake in a cyclical wave motion and not in a straight linear line. Perhaps it was his diverse observations that enabled him to discover the nature of how light actually moves.
Using complex physics, I measure the internal force behind price movement that is the energy within the system. This is that FORCE of tug and pull between the bulls and the bears. This view is strikingly different from oscillators for it illustrates the degree of a market reaching its maximum entropy that reveals over-bought and over-sold.
An oscillator functions entirely differently and is a simple one-dimensional layer of math. That is still a flat model of a market, but it requires human interpretation to reveal the difference between two or more markets introducing human error.
Even mapping out volatility depends on your definition. There is internal volatility with the distance between a high and low, overnight reflecting yesterday’s close to today’s open and then there is close to close. Then people apply moving averages etc.
Utilizing applied physics enabled me to see things deeper. Bifurcation modeling managed to pick turning points with exceptional accuracy. Nonetheless, this was still just a flat model.
Bifurcation models showed the high for the 30 year bonds in 2012 and points to 2018/2019 as the next key target period. However, it is the ENERGY mode that reveals the bubble. Look closely at the first chart. You will see the difference with the sharp spike to the upside for 2012/
In our forecasting array, we have brought together 72 models. The best way to look at this for beginners is the top row composite. This is the sum of all models and the targets that are the highest and lowest reflect turning points. The colors simply change with the direction.
Keeping an open mind allows us to learn. A closed mind reflect the idiot who will never learn and instead will cling to his old theories until they die. The greatest of all mistakes is they always try to create some linear relationship reducing the complexity of the world to a since cause and effect. This is human nature unable to advance.