Swarm Theory, Betfair and Life.
In National Geographic the other day I read about swarm theory and self organising systems. It tells you how e.g. a school of fish is able to make quick decisions by making use of collective intelligence or 'hive mind'. Basically they use three fairly simple rules:a) avoid crowding nearby fish.
b) swim in roughly the same direction of other fish.
c) stay close to nearby fish.
This results in the typical behaviour of a school of fish, twisting and turning almost as one. In this way schools of fish - move to avoid a predator.
But I have also read that when schools of fish or animal groups become massive - they eventually 'swarm' across the predator - even if those close to the predator move away - the sheer weight of numbers just ploughs on so as to make the reaction of the few insignificant.
Hmm....now on which Betfair market did I recently experience that...
Swarm living provides protection and a supply of potential mates, so swarm members rarely perform actions that could undermine the group. It is called 'comfort' - move, live and feed together....sound familiar? It will if you are a trader or analyse the behaviour of large groups of animals or people in your work.
But be aware - swarm analysts also now suspect that swarms, herds or any large groups of animal are often led by mavericks - but are these strong willed individuals really mavericks or just desperate? Theorists now think that a whole flock of birds may change their course simply to follow a break-away bird that is nothing more than hungry and searching for food.
So don't assume that everyone who comes in with a large lump during a swing trade actually know what they are doing! They could be desperate or of unsound mind!
Applying these kinds of theories to markets is nothing new - many people recognise John Train as being one of the first people to compare natural swarm style phenomenon to financial markets - and that was in 1975.
In "Dance of the Money Bees" Train described how bees forage for food and how the degree of their agitation in front of their hive is directly related to the size or status of their find. Train made the analogy to describe money managers when they are excited by a stock and how they swarm like the hive.
It is fascinating but it is also unfortunate - in fact I think it is truly terrifying. It is how we operate within the world. It is nature, our nature. I believe that it is because of this inherent behavior that we will continue to repeat in some way, shape or form the catastrophes of our existence - like those that we have just experienced in the financial markets.
It is simply a matter of time.
posted by Betting Exchange Trader
