Forex Volatility – Mandelbrot’s 10 Heresies of Finance

Whenever markets get a bit agitated and we see sharp and aggressive “risk-off” movement, I try and recall which of Benoit Mandelbrot’s 10 Heresies of Finance is playing out at that moment.

With respect to the DIBS trading method, I think of the 3rd heresy, especially the manner in which opportunities appear to cluster.

The “10 Heresies of Finance”, how do financial markets really work? Mandelbrot’s “fractal view” (chaos theory) reminds us that:

1.       Markets are turbulent

2.       Markets are very,very risky. More risky than standard theories imagine.

3.       Market “timing” matters greatly. Big Gains and Losses Concentrate into Small Packages of Time

4.       Prices often leap, not glide

5.       In markets, time is flexible

6.       Markets in all places and ages work alike

7.       Markets are inherently uncertain, and bubbles are inevitable

8.       Markets are deceptive

9.       Forecasting prices may be perilous, but you can estimate the odds of future volatility

10.   In financial markets, the idea of “Value” has limited value

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