(A recap from the physicist Richard Feynman)

“In the beginning of the history of experimental observation, we simply recorded our experience with a system to propose reasonable explanations for the way in which things operated in that system….however as we widened our domain of enquiry to more holistically assess our observations we found that we needed ‘laws’ as opposed to simple explanation to explain our experimental observations. But what was evident as we expanded our domain of enquiry was that our explanations for experimental observation became more and more unreasonable and more and more intuitively far from obvious. 

So what was happening? As we stretched beyond our everyday experience and intuition we found that our understanding based on our knowledge base accumulated through empirical observation represented only a very small fraction, or a special case, or a very limited experience of a system’s totality” – Richard Feynman

Given that we apply the scientific method to explain our observations with a ‘best fit’ model of the time, you can then clearly see that there is really never any truth statements. Rather the pursuit of science is a progressive journey that is never complete.

In statistical terms we define our arena of examination (a total population or system) and then draw on an ever increasing sample of that total population to derive a model for how that sample works. As our domain of enquiry expands, so our models adapt and change to progressively get closer and closer to understanding how that total population (or system) works.

Unfortunately however, we need to understand, that in accepting this process, we need to divorce ourselves of our narrow opinions based on our everyday intuition and be prepared to stretch ourselves and our imaginations to the utmost if you want to keep up with the pace.

Sometimes a picture however (or a demonstration) allows us to strike to the heart of the matter where we can short cut the process and have a sneak preview of where we are heading. A step into the future so to speak that makes us realise that we need to be prepared to accept that we have so much more to learn, and in embracing it, we need to let go of our naïve simplistic intuition and be prepared to question the bedrocks of our classical reality.

For example, there is no better ‘slap in the face’ than Thomas Young’s Double-Slit experiment which demonstrates the simple fact of wave-particle duality. The implications of this are far–reaching in that it demonstrates that there is a fundamental limitation of the ability of an observer (human or apparatus) to predict experimental results. This does not relate to the accuracy of our measuring instruments but rather that reality itself is probabilistic in nature.

Now for those that are really interested and want to revel in the magnificence of a mind at work, then ponder the following remarkable lecture from a remarkable inquisitor of nature.

https://www.youtube.com/watch?v=citY6G8ePJw

However for those that like the sound bite as opposed to the magnificence of listening to a great mind at work, here is a fitting video that may shake your notions of reality.

https://www.youtube.com/watch?v=DfPeprQ7oGc

Now to save you time in head scratching in attempting to understand the why’s of this demonstration, like any magical illusion, you need to focus on the entire experimental setup and do not trust your eyes. What we see in our classical world, by focusing on the ‘things’, provides a radically different interpretation to that which is interpreted if we focus on the entire experimental setup (including the observer or measuring device and that which it is observing/measuring).

If we focus on the ‘things’, our universe or the small section of any system we are evaluating takes a discreet form of apparent certainty. That is the magical illusion.

We fail to recognise that the observer or measuring device itself is a system configured in a very specific way, and how we participate in a complex system has radical implications to any associated reality that emerges from this participation.

If we adopt the principle that what we observe is the ‘reality’, we fall into the trap of ‘bias’. This is simply because we apply our reasoning based on that very small amount of knowledge we have accumulated from our narrow experience. That narrow interpretation assumes that fundamental particles have permanence independent of context.

Like my prior post where we started to understand the importance of systems and processes, to make sense of it all…..it’s time to dig deep into a system once again with critical reasoning that avoids the tendency to pollute the mind with preconceived bias.

A ‘reality’ (or what is observed) is an interaction event comprising a dual relationship between that which is doing the measuring and that which is being observed. While we think in our experiments that we are standing outside the system and observing how a system operates, a reality actually is forged by who or what is doing the measuring. We need to embed ourselves in the context to interpret an outcome.

Think of the Double-Slit experiment. If we do not observe which path the electron (or thing) went through the slits towards the photographic plate, then without disturbing the system, we see that a thing such as an electron does not exist during its passage from the source towards the photographic plate. It only manifests its presence (or emerges as a classical reality) when it reaches the photographic plate itself. At this point a record of its presence (an interaction event) is recorded on that film.

If however we decide to observe which slit the electron passed, we need to interact with the system under observation at the slit itself and that interaction actually causes a classical reality to emerge at that instant in space-time.

As you can see, what we refer to as an electron is simply a residual ‘interaction event’ at an instant in space-time. Otherwise there is no such electron, just a probability wave of potential. Physicists refer to this duality as follows…..an electron (or any particle) travels as a wave and interacts as a particle.

There is nothing spooky about this. What has blind-sided us is our naive perception that an electron is a real particle that just exists independent of its context.

The actual process of observing requires that we must interact with a system, and transcribe our system state (or the experiments system state) into the system under observation. In doing so we must disturb the separate system states by merging them. The result is now a more complex system comprising the simpler system prior to observation plus the addition of the system of enquiry resulting in a more complex system attributed to the process of measurement.

A ‘thing’ or ‘event’ is an ‘interaction’ between an observer/measuring device and a system state. The ‘thing’ is created through the interaction itself. It does not exist before that interaction takes place. It is an emergent outcome of a process.

There is no electron or thing that simply is. Prior to investigation there is just a potential outcome for a thing to exist through interaction described by a probability wave of potential. We use a classical instrument called a measuring device to look for an electron. This measuring device is simply a system that is pre-configured to detect electrons.

Its classical pre-configuration necessitates that it is designed to detect a ‘thing’ which has defined attributes (that classically we call an electron). We then merge this system configuration within the system under observation by adding this separate configuration state to the system under observation.

The result is therefore the context prior to observation (eg. System State A), plus the addition of the new separate classical system configuration state (System State B) prepared by Observer B, resulting in a new system state (System State AB). System State AB now includes the observer/measuring device (Observer B) in its total state definition. In quantum mechanics the method we use to describe quantum states is by Bra-ket notation introduced by the physicist Paul Dirac.

Now where does the electron in all of this arise? You will note that we have added a system configuration which is designed to detect an electron. Its system state is therefore configured like a container to record whether or not the stuff inside a system at a particular location and time exactly fits within that container. If so, then an electron exists. If not, then no electron exists at that specific location.

When we insert this container (system state) into a system under observation, we define the boundaries (or attributes) of an electron at the time we measure it. Not before. We therefore add information to the original system under investigation during our interaction with it. We constrain the outcome through our interaction with the system to give rise to a result that is configured (or mapped) to a classical condition we define as an electron.

In the words of the physicist John Wheeler, “the boundary of a boundary is zero”. I will leave this riddle for you to problem solve but it strikes at the heart of the matter and provides a clue of how “its arise from bits”…..another riddle of Wheeler’s. Those dreaded ‘things’ we like to cherish. Anyway, I digress…

Importantly, through the merging of system states we add a pre-configured classical state into the original system under observation. Note that what we are doing here is resolving that an electron exists by system addition. We are contaminating the original system with an enquiry to render a result……. as opposed to identifying whether an electron existed in the system prior to observation.

Prior to observation there was only a ‘potential’ defined by a superposition of states that a thing configured to that state of an electron existed at any discrete location within that system. After observation however we added a new configuration state to the original system to define whether or not an electron will or will not be found at a particular location. Before observation there was no such thing. At this point in time once the measurement has been performed an actual outcome is resolved from a prior superposition of potential states. This is what is referred to as ‘collapsing the wave function’. A wave function is a description of the potential outcomes that may arise from a classical experiment and is probabilistic in nature. Prior to measurement there was only a potential for existence. After observation our inputs disturb the system (by addition) to alter the new state and allow for an electron to classically emerge for that participant (eg. Observer B).

To another class of observer (Observer C), they cannot now interrogate System A as it no longer exists. If they want to interrogate the supposed same system (System A), it no longer exists as it has been fundamentally altered into System State AB through interaction by Observer B. Observer C therefore needs to interrogate System State AB. In doing so a new system state is produced called System State ABC. You can probably see where this is heading. Both participants B and C, can only share the same reality (eg. that an electron exists if they are both participating in the same system state). A shared reality is therefore created as more and more participants interact with a system.

As participants in a system, our interactions add inputs into the system. In doing so we fundamentally alter the system state. We can never in reality observe anything without interacting with it. It is the entire context of how systems inter-relate that creates our reality.

The profound difference in interpretation between those that see things as a reality versus those that recognise a reality is created by the way we participate in a system, prevents many of us from seeing the forest for the trees. Our classical nature (restricted viewpoint) actually prevents us from experiencing the wider reality of the system. We do not need to navigate into parallel universe or hidden dimensions to understand this. It is right at our disposal here and now, but only if we open our eyes and remove our innate biases.

To an alien race who inhabited a far wider domain or different scale, they might say, “well of course this is the case, it is intuitively obvious”..but for us mere mortals living in a very narrow niche of a greater system, we rail against the conclusions of this experiment that strike at the heart of our classical notions of a reality. Such an experiment allows us to stretch our imagination beyond that which is common in our everyday realm and allow us to see the wood for the trees. It was the great Richard Feynman who was fond of saying that all of quantum mechanics can be gleaned from carefully thinking through the implications of the Double Slit experiment.

So how does this relate to trading? We are participants in a complex market. We interact with the market at only two times. Our entry and our exit. It is through our participation that we create a new system state and this system state continually evolves under the degree of participation. We simply cannot predict how the system will unfold over time as the two very short times we interact with the market represent only two brief instants where we have a chance to contribute to the market dynamic.

At all other times, we are victim to the impacts of participation from third parties. Unless we understand the intent of other participants and their degree of impact on the system state, we really have no idea about any form of future reality. The same can be said of our future in this universe. We can never anticipate it due to the unfathomable complexity arising from the impact of systems upon systems.

Any attempt at prediction is stepping into ‘woo science’. So why do we do it? Lets start thinking like scientists and start accepting that prediction is useless. If you can’t predict the future, the next best thing to do as a trader is to simply follow the immediate past (namely price) and manage your risk. If you have a system that can manage the risks of uncertainty then simply follow the trend my friends…..until it bends.

Trade well and prosper

Rich B