What is MAP Extraction?
and How it Works

Mapping the Advantage to a Curve

The advantage is a ratio that can be dynamically used as a control measure to limit participation to the most optimal situation or environment. It’s highly favorable properties are described in this blog here. The purpose of this article is to explain how mapping the advantage to a particular environment called a patch — can give you a powerful performance edge — which will compound money faster than alternative approaches.

The normal curve and the two diagrams below have in common a single peak that is labeled as point c below. The adjacent theorems explain the features that will occur when such peaks or valleys exist. A generalized measure of performance that can be mapped to almost any situation or environment by assuming that favorable performance occurs before c and unfavorable after it.

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Diagram 1The shape of curve could be as shown or inverted dependent on usage. What counts is the order and location of points a,b and c and their representation of performance on a closed interval. We can represent the advantage on the curve so positive mathematical expectation will occur between a to c and negative afterward.

To do this we need to be able to extract the information that will enable us to determine when assets will accumulate faster (same as compounding) in the specific environment of interest. Here extract means to reduce those factors into a concise formula suitable for determining whether we do or do not have an advantage. This process becomes simple after we are able to repeatedly use the same measure to give us a clear advantage.

Mapping Wealth Distribution to a Curve

In reward to risk related situations — when the advantage is higher the reward will also be higher while the risk will be lower. This recurrent theme is easily applicable to physical models where the ratio and magnitude of wins and losses are measurable between two intervals such as a and b described above. What makes this model attractive is the simplicity with which information between the interval points can be dynamically measured.

Much of the power in the model has to do with the volume of evidence related to human conflict to capture and secure the most favorable land masses to grow their societies. In short, military conflicts have typically been a key factor in determining how societies obtain and/or keep various land patches. We now turn to wealth building within societies which can also be defined as patches — typically protected by military powers — as proved by historical evidence.

Human competition to gather wealth is different from — animal foraging as discussed in Marginal Value Theorem. As our societies have evolved — those focused on risk taking situations have sequentially dominated both local and world economic wealth. What is known as the Pareto principle is often used to imply that approximately 80% of wealth as defined by land ownership and/or income growth is controlled by just 20% of the population. Partitioning the 80/20 relationship with the same points as labeled in Diagram 1 — gives us a similar curve that we will use to illustrate concepts related to the advantage and patch dynamics.

Diagram 2How to Move toward the top 20% of the Curve

Assume points a to c represents the top 20% as shown in Diagram 2 which is called Optimal Accumulation Theorem (OAT). The curve is the same as that of the Marginal Value Theorem — but you can not wander freely due to what is explained above — about how such patches are protected within our human societies.

You don’t get to pick the street you are born on — which could determine your initial place on the wealth distribution curve. However, after birth what you learn about risk taking — combined with your focus on taking smart risk — will typically be the determining factor where you end up on the curve. Most people never accumulate the interest or skill sets — which is part of the reason for the disparity. This can be remedied by increasing risk taking skills and using a credible process that works no matter what part of the curve you are born on — or are on now.

Let’s say you are at point b on the OAT patch. Here’s our big idea. We show you a risk taking process in which you can learn how to use the advantage to trade a wide variety of markets. Obviously, a serious effort would be needed to accumulate and convert your knowledge into cash — but you would have a huge edge — with the capacity to do that. Your challenge would be to understand the math behind the physical model, how to properly use it — and to develop a team to make money using the advantage in trading markets.

What’s the logic behind the math?

Liquid market assets typically have highly fluctuating values. The nature of the fluctuations create such visual problems that most existing mathematical models and/or traders do not know how to calculate or use an actual advantage. Most have to estimate it — or use other means. Both these attempts will distort points a, b and c. The missing link is in the logic not the math. Same reason brilliant mathematicians failed to solve blackjack over the centuries until the 1960′s. This presents limitless potential — because it’s like being in a world where the game of blackjack exist — but card counting as the solution has not been discovered yet.

Sure, it possible to make money in the markets without using an actual advantage, but the performance would be less attractive than if it were precisely calculated. Additionally, because of how market information fluctuates — defining and using the advantage on a similar basis as casinos requires reducing the level of non-redundant factors so that the outcomes can be dynamically controlled.

Map Extraction is a way to dynamically value information streams so that money can be extracted via a compounding process without complex assumptions. Information is partitioned into equivalent sets like a deck of cards. Hence, higher levels of disorder and randomness in markets — are physical dynamics which appear in the same region after c in Diagram 1.

Point d which exist if point c does and arrives after it — can be used as an optimal control point to maximize positive and minimize negative compounding. If you learn how to repeatedly use it to profit and to exploit enough favorable opportunities — to move toward the top 20% of the curve as shown in Diagram 2. What follows in subsequent articles will be more details on how you can use knowledge of these concepts to navigate that journey.