Philosophy of Cognitive Stock Charts
| Human minds are much less than random, the best ambiguities they can achieve are a less random phenomenon called Chaos in mathematic and physic jargon. Just like we don't need to understanding each cell in a human body to tell if it is healthy or not, we don't need to understand chaotic mathematic theory to read Cognitive Stock Charts. Cognitive Stock Charts treat the market like a human body and use the systematic methods similar to Chinese traditional medicine to tell the healthy status of the market. A healthy market is a growing market while an unhealthy market is a sinking one.
Without modern instruments to probe the inner structures of a human body, Chinese traditional medicine developed a system to find the sickness of human body based on a very few outputs of human body: the pulse of heart, the breath of lung, the smell of stomach and the appearance of body. Ancient Chinese doctors thought that the health of a body is governed by two kinds of indispensable energies called Yin energy and Yang energy. While Yin is negative to reflect the passive side of the relation between the body and the Universe, Yang is positive to represent the active side of such relation. Yin and Yang are dynamically balanced to contribute a healthy body and any destruction of such dynamic balance will lead to some kind of sickness. A human body is a complex system and so is a stock market. Based on basic chaotic dynamic theory, a human body and a stock market share many factors such as emergent phenomena and self-organization, etc. It is impossible to invent simple statistic models to predict the behaviors of such kind of complex system. The most efficient way so far found in this Universe for modeling this kind of extremely complex systems, is surprisingly wildly available in the market; namely, the human brains. However, although human brains are the most efficient instruments to model the stock markets, they are unfortunately not the most effective ones because human brains can only work for short time periods and for low mental pressures. Therefore, even the most able professionals in Wall Street can make the stupidest movements. This is also the reason that professional traders need computers to tell them the trends. Yet, a computer with conventional technical analysis software can only offer very limited information to the traders. While this kind of computer is merely function as a data-visualizing device, the trader must to interpret the data in the form of trends and curves. Therefore, the professionals in Wall Street hired the smartest mathematicians to make their own tools for data mining the market data just because the combination of (data-visualization devices + traders) is simply unreliable. If you can not offer to hire the smartest mathematicians, and you get sick of the (data-visualization devices + traders) combination, the Cognitive Stock Charts will provide you with a promising alternative way to analyze the market. The philosophy of Cognitive Stock Charts is not to fight against the markets, rather than joint force with the markets to fight against other traders. In a word, you can not get profits from the market because the market is only a platform, itself has no money. You get your profit from other traders. Cognitive Stock Charts observe market from only two factors: the negative money energy and the positive money energy. Negative money energy is caused by the panic and loss of confidence of traders to the market. Positive money energy is caused by the high expectation and confidence of traders to the market. Negative money energy contributes to the crash of stock price and positive money energy contributes to the increase of the price. Since the negative energy is the cause of price decreases, we can predict a dip of a stock by observe the history of negative energy. On the other hand, since the positive energy is the cause of price increases, even in a depressed market we can predict the coming increasing cycle by observing the accumulation of positive energy. In the rest of this webpage, let us to learn the most basics of Cognitive Stock Charts. |
Components of a Cognitive Stock Chart |
| As shown in the following example, the interface of a Cognitive Stock Chart consists of the following four horizontal windows.
1. Short-term price and market energy. 2. Long-term price, market energy and computational verbs. 3. Negative money energy and positive money energy. 4. YangSky Index. We shall inspect the details in each window one by one. |
 |
| 1. Short-term price and market energy.
The following two figures show the first and the second halves of the first window. In the first half, the strange-look trajectory-like curves in the white box at the left-bottom represents the [phase plot of the chaotic attractor] of the short-term [price & money energy] relations. From this attractor an expert can find the short-term market movements, however, we don't suggest starters to use this feature because an inexperienced trader can make very risky decision based on the “pipe-view” of the short-term curves. No short-term trends are provided because we believe short-term trends can be manipulated by powerful traders and therefore, can be very misleading. Instead, the trader need to base on the long-term trends, which will be shown in the second window, for the trend information. The light purple date, time and year shows on the left-bottom shows the sample time of the first trading price data displayed in this window. The green thick curve is the short-term price trends. The dim gray think irregular curves around the green curve is the trading price within each day. The thick white curve is the money energy. Money energy is useful to determine the strength of the force to push or pull the price. In many case, money energy can be used as an index for predicting the movement of the price. |
 |
The second half shows three more parameters: the highest and the lowest price in the short-term window and date, time and year when the last data was collected. |
 |
| 2. Long-term price, market energy and computational verbs. |
Almost the same as that in the first window, only this time the time can be ranged form more than ten years. The first half of the second window shows the date when the first of the first price, the highest and the lowest prices. The most important information shown in this window is different regions of price increasing and price decreasing. This information is very useful for traders to understand the history of this stock and the increase and decrease patterns in the past. The bright blue and the dark blue background representing the increasing and decreasing regions, respectively. |
 |
The second half of the window 2 shows the date of the last price points and observe that the space of price point in the last one year before the last date is wider than that for previous years. The double scale displaying schedule is very useful to magnify the details of the data within the last year for precise decision making. The non-developer user don’t need to know the meanings and the programming procedure using computational verbs. |
 |
3. Negative money energy and positive money energy. |
| The thick yellow curve show the negative money energy and the thin red curve show the positive money energy. Observe that the dim gray lines give the boundary of data of one year. The horizontal direction of the data in the last one year is also magnified to give details of the most recent data. |
 |
4. YangSky Index |
YangSky Index is very useful to understand the US stock market as a whole. In this case, the individual stocks contribute to the YangSky Index in a very complex way. YangSky Index is not a weighted sum or average of anything directly related to the stock prices. We believe that the stock prices can be manipulated by big traders and therefore can not serve the purpose of probing the "feeling"; namely, the cognitive aspects of the market. As shown in the following image, the cognitive behavior of US stock market was changed qualitatively from a valued market to a speculated market about 10 years ago. Just by observing the relation between the positive energy (red curve) and the negative energy (yellow curve) , one can see that before the breakpoint 10 years ago, the dominate force in the US stock market is positive energy while after that breakpoint, the dominate energy in the US market become negative. When the some one buy stocks in 1970s'. s/he could expect to hold the stocks for 10 years and gain a significant capital gain when s/he need the money in 1980s. This is because from 1970s to 1980s, the US stock market has a net income of positive energy. As a results, the value of the stocks you hold for long time was usually growing along time.. However, when a people buy stocks after 1996, if s/he wants to hold the stock for 10 years and still gain enough profits, s/he was day dreaming. YangSky Index show it in such a simple way: after 1995, the negative energy became dominate the US market and therefore, a stock held for 10 years should be virtually like a stock held for 1 year, if not worse. In today's US market, you need to shift boat fast and must take advantage of short-term gains. It is not your parents' kind of stock market anymore. |
 |
May 01, 2006 Signaling a Bear Market in 3 to 6 MonthsWhere is the direction of the market within half year or so? Let us take a look at the following figure showing the dynamics of YangSky Index during the last two years before April 28, 2006. The first half of this figure shows that in the first year, the negative energy and the positive energy are keep virtually balanced. Therefore, it is a reasonably healthy and bull market. However, take a look at the second half of the image when the second year is concerned. About half years ago, the negative energy accumulate with a much faster speed than the first year and the positive energy keeping decreasing. The Yin-Yang balance had been entirely destroyed and this is a very very dangerous sign that usually seen before a huge crash of US stock market. Since the delay of action to this Yin-Yang unbalance, we expect the crash will happen anywhere between into the future 3 months to half year. Only when the positive energy regain ground that this crash can be avoid. However, we can not see anything implies that direction. Be prepared and enjoy a bear market soon. (May 01, 2006. the Department of Cognitive Economics, Yang's Scientific Research Institute, LLC., Tucson, Arizona, USA. ) |
 |
Historical Analysis |
| 1987 crash can be clearly seen caused by a significant accumulation of negative energy as highlighted in the following image. Observe that during this crash a weak peak of positive energy try to gain ground to fight back. However, this positive peak was soon pushed away by a even higher peak from the same negative energy pack. The second peak just make the crash worse. However, they are the same. The enlarge of this portion of image is show as the second picture for this analysis. |
 |
| detailed view. |
 |
Resources
1. How to apply Cognitive Stock Charts to long-term investments?(under construction)
2. How to apply Cognitive Stock Charts to medium-term investments? (under construction)
3. How to apply Cognitive Stock Charts to short-term investments? (under construction)
