What is The Physics of Markets?
Why Core Strata builds bias from forces (liquidity, leverage, narrative) instead of patterns.
Definition
Markets are not random walks; they are mechanical systems of supply, demand, and forced flow. Every move can be decomposed into four physical drivers: liquidity (how much capital is willing to transact at each price), leverage (how much capital is *forced* to transact when prices breach a threshold), narrative (how participants frame the next move), and information asymmetry (which side has the better read on the next release).
Why it matters for trading
- Pattern-matching alone (head & shoulders, RSI divergences) ignores *why* a move happens. Two identical chart patterns can resolve differently depending on dealer positioning, options expiry pressure, and macro regime.
- Forced flow — margin calls, gamma hedging, central bank pegs — overrides discretionary trading. If you do not model the forced flow, you will be on the wrong side of every disorderly move.
- Narratives compress fundamentals into actionable bias faster than fundamentals reprice. A war headline moves crude before any inventory number; a Fed pivot moves yields before any CPI print.