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 This is good: it gets our model out of the gate. If investors were not broadly homogeneous, our statistics would not work. “What is the average height of all things” is not a meaningful calculation.
-But there is a second order sense in which the earlier and later trades are related: the later participants know about the earlier trade and its price — and its position in a trend from the trade before that — and they will use l this abstract information to form their bid and ask. This interconnectedness of transactions means they are not entirely independent, but the immediate transaction history is pretty chaotic and, as traders say, “noisy”— in the immediate term, the dissimilarities between trader motivations are most pronounced: it is only over a large aggregate that they cancel themselves out — that is to say a “signal” only emerges from the noise over time. If all traders are using market information, this immediate interdependence looks like independence. So a stochastic model works fairly well. In the same way impurities and intervening causal interference means the the conditions are never quite right to fully satisfy Newton ’s model, and the world never quite obeys it, but does so only roughly, so it is with statistical techniques in the market. The occasional intervention of idiosyncratic behaviour is basically noise.
+But there is a second order sense in which the earlier and later trades are related: the later participants know about the earlier trade and its price — and its position in a trend from the trade before that — and they will use l this abstract information to form their bid and ask. This interconnectedness of all similar transactions means they are ''not'' independent, as the probabilities of [[normal distributions]] require, but most of the time it's close enough: the immediate transaction history is pretty chaotic — as traders say, “noisy”— in the immediate term, here the dissimilarities between trader motivations are most pronounced, but over a large aggregation of trades these dissimilarities tend to cancel themselves out. A “signal” only emerges from the noise over time. If all traders are using market information, this immediate interdependence looks like independence. So a “normal” probabilistic model<ref>I am working hard not to use the intimidating term [[stochastic]]” by the way.</ref> works fairly well. In the same way, when you bounce a ball friction, energy loss, structural imperfections and intervening causal interference means the conditions to fully satisfy Newton’s model are never present, so a bouncing ball never quite obeys it, but it is close enough. So it is supposed to be with statistical techniques for measuring behaviour in the market. The occasional intervention of idiosyncratic behaviour is basically noise.
+But there is a third order of dissimilarities. In times of stress in the market the behaviour of other people in the market ''directly'' and ''directionally'' affects your transaction, and yours affects others.
+This is not just the crowded theatre phenomenon, when everyone stampedes for the exits at once, and the narrow aperture makes the stampede all the more urgent, and therefore dramatic — but second order features. An investor long “on margin” might wish to, and be able to, ride out a short term crash by meeting margin calls. In most dislocations this is the obvious and — if you can manage it, correct — thing to do. The market usually recovers, at least in the short term. But meeting your margin call means drawing on your revolving credit facility and your bank is experiencing a liquidity crisis and unexpectedly pulls you lines, or suspends withdrawals, as a result of its own market exposure to the crash. Your prime broker, usually patient with you and tolerant of peripheral looseness in your margin operations, is also under pressure, has told you today there is no flex, and for good measure, it is jacking up your IM.
+Cash is suddenly King Queen, Jack and Ace. People on the TV wandering dazedly around outside their buildings clutching [[Iron Mountain]] boxes full of personal effects.
+All indictators are going one way, across the board, in all markets and all asset classes.
 buy or sell. In the modern days of computerised trading everything is very clean, tidy observable, unitary and discrete.