CFA Series
Note from Erik Long:
This educational material about Jay Sorkins Cash Flow Analysis Series is based on my personal interpretation of his work. I have had the pleasure to meet with Mr. Sorkin several times to discuss Chaos theory and its application to the markets. Although his methods differ in various degrees from mine, I believe it deserves serious study.
Markets are now being viewed as complex adaptive systems to be studied in their total environment. The science that makes this possible is known as Complexity theory. Complexity theory includes a series of processes known as fractals, entropy, feedback loops and other events relevant to self-organizing adaptive systems. Market participants create this dynamic non-linear system by interpreting new information and making a collective market decision. This process continues in an endless loop as the markets trade.
A new market analysis tool that allows you to interpret and forecast market movement is the Cash Flow Analysis Series (CFAS). This is a graphic model that uses fractal geometry and complexity analysis to analyze the interaction between the market’s natural organization and human behavior.
The CFAS was developed over the course of eight years of research. The model had to meet two criteria before it was accepted. First, the framework must operate in all market conditions. Second, the market must confirm numbers selected in advance for price. Mr. Sorkin makes it clear that although this model can be used to anticipate prices, it should be used as a tool, not a crystal ball trading system.
The CFAS uses a unique approach to organize value visually. Using a chart that Sorkin has labeled the “Sierpinski waltz”, market participants establish a range and proceed to test various outcomes within that range. As the illustration below demonstrates, the vertical axis is the price scale. The horizontal access represents “market time,” which is the time it takes market participants to reach a consensus on value. The dated rectangles represent the first standard deviation of trading volume for that day. These rectangles are sequentially opposite the price data. If one rectangle overlaps another by the smallest amount, it is positioned in the next column. As activity moves to the right, trading volume converges geometrically to the market participants new view of value. Value is the halfway point between the high and low of the convergence range. The convergence range is the approximately equal horizontal parameters defined by the extremes of the price action. The value is the price halfway between the two extreme price levels. The user assigns value, but the assignment is supported by the actual distribution of the roughly equal horizontal parameters.
Sorkin uses two diagonal lines to connect the vertical price with the horizontal time. These lines also form the triangle’s solid outline. The dotted line to the right of the price rectangles (the vertical rectangles in the triangle) represents the flow of money into or out of the market. The empty space between the dotted line and the solid outline of the triangle illustrates where longer term money has been placed in the market by previous activity. As long as this space is empty, longer-term support (space below value) and longer-term resistance (space above value) exists.
The angle at the tip of the triangle is fixed, establishing a scaling relationship. A template is positioned over the triangle composed of broken diagonal lines and the solid vertical lines in the triangle. The diagonal lines connect the price on the vertical axis with the time on the horizontal. These connections form a series of feedback loops between short term and long term price levels. These loops in combination with the dated volume rectangles displaying the distribution of price over time, identify objectives for long term trends in advance.
This educational material about Jay Sorkins Cash Flow Analysis Series is based on my personal interpretation of his work. I have had the pleasure to meet with Mr. Sorkin several times to discuss Chaos theory and its application to the markets. Although his methods differ in various degrees from mine, I believe it deserves serious study.
Markets are now being viewed as complex adaptive systems to be studied in their total environment. The science that makes this possible is known as Complexity theory. Complexity theory includes a series of processes known as fractals, entropy, feedback loops and other events relevant to self-organizing adaptive systems. Market participants create this dynamic non-linear system by interpreting new information and making a collective market decision. This process continues in an endless loop as the markets trade.
A new market analysis tool that allows you to interpret and forecast market movement is the Cash Flow Analysis Series (CFAS). This is a graphic model that uses fractal geometry and complexity analysis to analyze the interaction between the market’s natural organization and human behavior.
The CFAS was developed over the course of eight years of research. The model had to meet two criteria before it was accepted. First, the framework must operate in all market conditions. Second, the market must confirm numbers selected in advance for price. Mr. Sorkin makes it clear that although this model can be used to anticipate prices, it should be used as a tool, not a crystal ball trading system.
The CFAS uses a unique approach to organize value visually. Using a chart that Sorkin has labeled the “Sierpinski waltz”, market participants establish a range and proceed to test various outcomes within that range. As the illustration below demonstrates, the vertical axis is the price scale. The horizontal access represents “market time,” which is the time it takes market participants to reach a consensus on value. The dated rectangles represent the first standard deviation of trading volume for that day. These rectangles are sequentially opposite the price data. If one rectangle overlaps another by the smallest amount, it is positioned in the next column. As activity moves to the right, trading volume converges geometrically to the market participants new view of value. Value is the halfway point between the high and low of the convergence range. The convergence range is the approximately equal horizontal parameters defined by the extremes of the price action. The value is the price halfway between the two extreme price levels. The user assigns value, but the assignment is supported by the actual distribution of the roughly equal horizontal parameters.
Sorkin uses two diagonal lines to connect the vertical price with the horizontal time. These lines also form the triangle’s solid outline. The dotted line to the right of the price rectangles (the vertical rectangles in the triangle) represents the flow of money into or out of the market. The empty space between the dotted line and the solid outline of the triangle illustrates where longer term money has been placed in the market by previous activity. As long as this space is empty, longer-term support (space below value) and longer-term resistance (space above value) exists.
The angle at the tip of the triangle is fixed, establishing a scaling relationship. A template is positioned over the triangle composed of broken diagonal lines and the solid vertical lines in the triangle. The diagonal lines connect the price on the vertical axis with the time on the horizontal. These connections form a series of feedback loops between short term and long term price levels. These loops in combination with the dated volume rectangles displaying the distribution of price over time, identify objectives for long term trends in advance.
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