Making Sense of the Chaos: How Algorithmic Trading Increases Investor Returns

The article was written by Jessica Kremer - Analyst at I Know First.

Summary:

  • Human investors are prone to judgment errors while investing in the stock market.
  • Chaos theory allows I Know First to use artificial intelligence and a self learning algorithm to correctly model and predict the stock market.
  • There are multiple instances where chaos theory has enabled our algorithm to make correct decisions while other investors made losses. 

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Unpacking the Ins and Outs of a Chaotic System – How Can We Predict it

I Know First Research Team LogoThis article was written by the I Know First Research Team.

Summary:

  • What is Chaos Theory?
  • Earthquakes – An example of a Natural Chaotic System
  • Randomness vs Chaos 
  • What makes a Chaotic System a Chaotic System
  • Modeling a Chaotic System
  • Can We Really Predict the Stock Market? Psychology of Trading and Feedback Loops

What is Chaos Theory?

Source: Medium

In a chaotic system like weather, a tiny change can make a huge impact. Weather is predicted a few days in advance because small changes in input can produce dramatically different results. 

The most commonly used example to explain chaos theory is the butterfly effect. It says that a butterfly flapping its wings on one end of the world can give rise to a hurricane in another part of the world. It sounds bizarre but it illustrates the huge impact small changes in the factors can have on the outcome. 

Without going into too much mathematical details, I would like to briefly explain how

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