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Chapter 8. Science of Trading > Chaos Theory: Linear v. Nonlinear

Chaos Theory: Linear v. Nonlinear

Chaos Theory dictates the world is not linear. The unexpected happens. Spending your life looking for the perfect prediction is an exercise in futility. The future is unknown no matter how educated your fundamental forecast. Manus J. Donahue III, author of An Introduction to Chaos Theory and Fractal Geometry, addresses a chaotic nonlinear world head-on:

“The world of mathematics has been confined to the linear world for centuries. That is to say, mathematicians and physicists have overlooked dynamical systems as random and unpredictable. The only systems that could be understood in the past were those that were believed to be linear, that is to say, systems that follow predictable patterns and arrangements. Linear equations, linear functions, linear algebra, linear programming, and linear accelerators are all areas that have been understood and mastered by the human race. However, the problem arises that we humans do not live in an even remotely linear world; in fact, our world must indeed be categorized as nonlinear; hence, proportion and linearity is scarce. How may one go about pursuing and understanding a nonlinear system in a world that is confined to the easy, logical linearity of everything? This is the question that scientists and mathematicians became burdened with in the 19th Century; hence, a new science and mathematics was derived: chaos theory.”[9]


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