Why Markets Break: A Quant's Perspective. Bender Part I

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Markets behave more like biological systems than most traders realize.

Imagine you're a doctor looking at an EEG scan of a patient’s heart. Everything looks normal—steady, rhythmic—until suddenly, there's a small anomaly. A blip where there shouldn’t be one.

A trained cardiologist might not even catch it at first glance. But an advanced machine learning model can pick up on that tiny irregularity and sound the alarm: This patient is at risk of a heart attack.

Markets work the same way.

Most traders watch price movements, but price is just the surface-level output of a much deeper system. What really matters is the underlying structure of how market participants are positioned. If that structure shifts too far in one direction, just like an anomaly in the EEG reading, something bad is brewing.

This is what Bender, the Pullback Indicator, was designed to detect, anomalies.

The Science Behind Bender: What Are We Actually Measuring?