I guess I shouldn’t post this, because I am sure there is a lot of debate about it. But, I believe and I don’t see why not, that in the near future computers will trade the markets. Traders, real people, all they will have to do is open an account and let the fast computers and software do the work. Or at least the software will. Why can’t a software program track the markets by analyzing the market data and then inputting the orders, stops and enters. I know we already have software that does this, but it is flawed. But as Technology gets more advanced why couldn’t there be a time in the near future that software will be advanced enough to actually make the decisions. Science is already predicting super fast computers, hardware and software that will think as fast as the human mind or think like the human mind. So I can see a day when actual humans will not need to do the thinking in the Markets.
have you ever heard of the term GIGO - Garbage In, Garbage Out?
Software or applications are only as good as their programmers.
Since humans are fallible, so are the applications they create.
Regardless of what happens, the human brain will always be superior.
Plus surely if such a thing became the norm we would then all become rich, as when a reliable programme hits the market we would all buy it, it would win big over time, and we all hit the jackpot. Which surely can’t happen. So while I see where you are coming from, I am inclined to agree with FringFX and say that the days of the human trader aren’t numbered just yet.
ST
A question for you.
If everyone used a computer that was always right. Then how would anyone make money?
If we all used the same program for trading, and I mean EVERYONE, then the market would never move. There would be zero liquidity, and we would be in equilibrium. The market moves because people have different views.
have you ever heard of the term GIGO - Garbage In, Garbage Out?
Software or applications are only as good as their programmers.
Since humans are fallible, so are the applications they create.
Regardless of what happens, the human brain will always be superior.
What about the term, User Friendly!
I think if there was a programme that made alot of money, people with the right know how would then make another programme to take advantage of the old one to make even more money… I think this already happens BTW…
That’s a foreign concept to most coders. Management thinking.
IMHO the market is largely driven my opinion and not by actually facts. So no matter how great a single programmer is his programme will never be 100% accurate all the time. Perhaps when specific opportunities arise it can be right though, maybe…
The only way I see it being possible is if we all had probes in our brains and all our thoughts were tracked.
This is my opinion.
EDIT: I’ll place a buy at market that this thread will go up by two post today. I’m almost certain it can’t go down?!
that makes me get more worried. am a newbie here. shall we make it???
Would you trust a computer to react to news events… like this morning… Drahgi stated they will do what is necessary to save the EUR. All fine words… but they have no plan! The market rallyed on hope without substance… really it was shorts covering. Computers can’t think and they can only react to events if the programmer thinks to add it… I’ll take my chances on my own thoughts, thank you. JRW
I feel like I’m the first pro-automated trading guy in this thread. Computers are faster than humans, and they are more efficient. They don’t need sleep, food or rest. With that said, I do not believe that one can just set a script to do 100% of the work, while the trader sleeps and eat all day. That will never happen. Nor will human traders ever go extinct.
But look at our current situation right now. Approximately 70% (low ball) of the daily trading volume in the stock market is generated through automated orders. So, there’s no reason that one can say the computers won’t work, because they do. But like everything there are pros and cons. Human traders have pros and cons, and so does computers. It’s all about how one works with what they have. So who ever thinks computers simple does NOT work, well they’ve clearly been living under a rock.
Also, about the fundamental aspect of trading, with the rise of quantitative finance and more specifically data mining and time series analysis, there has been tremendous growth in this area. Believe it or not, news can be anticipated and traded algorithmically. And for the non-believers, let me ask you this: what makes you think a human trader will have a better chance of trading the news? Can a human trader react/process information faster than a computer? You wish.
The point I’m trying to make is that the the volume of trades in the financial markets is already generated mainly from computers, mostly HFT, UHFT and LL firms but with computers nonetheless. There will always be a human aspect of course as the markets are still driven by emotions.
I don’t want to go too far off topic, but there is another area where computers will revolutionize trading as we know it today. That is the area of “deep analytics” and big data. Amazing things are being done and proposed in this area. Massive compute power and equally massive collections of data are driving this. This is no longer the domain of weather forecasting and earthquake modelling. Google uses it target us with ad placements. Probably most of us on these boards see more ads for Forex brokers than our colleagues and that’s no accident. I was doing some unrelated research on tennis machines and for the past month, I have been bombarded with ads about them instead of forex.
One fascinating article I read was about medical researchers are looking into the possibilities of using Twitter traffic to analyze and predict outbreaks of disease epidemics. In terms of the markets I can see the news announcements of monthly employment figures and trade balance figures becoming a thing of the past. In terms of capability it will soon be possible to do this on a daily basis if someone in a big bank was inclined. So instead of big moves after news announcements, there would be no discernible change, because everybody who matters was previously aware of the numbers and had built them into their expectations. We at the retail level will still be left behind wondering what is going on and always being late to react.
If a program will actually rule the market than perhaps it will be banned and it’s use will be prohibited by implementing some laws and strict punishments.
The government bodies are already talking about the impacts of high frequency trading. From my limited knowledge, I’ve read they are discussing a minimum hold time, which would kill lots of the high frequency trading.
Nice post CodeMeister, could you go into a bit more detail or perhaps lead us to some kind of resource regarding this topic. I myself have looked into it, but I have adopted it on a much smaller scale compared to the large, multi-billion dollar firms on Wall Street.
Much of this is still quantitative analysis, and a heavy dose of data mining using petabytes worth of data. The way I see it, it is more of machine learning and the use of collaborative neural nets. There are many genetic learning algorithms out there which are being researched and implement in the finance industry. Of course, as you’ve pointed out, there are many other sectors that are using it, such as the ones you have listed.
One example of this I’ve read about, which applies to the financial markets is that some firms are starting to use web spiders now to scan for ticker symbols of pink sheet stocks on the website. The theory is pretty sound. When a specific ticker is found around the web with a higher frequency than the mean it could be a potential target for a “pump and dump” scheme. Most people would see this in the form of spam emails regarding penny stocks. So these firms are actually trying to place positions before that even happens. This application was originally used in WWII to anticipate troop movements, although I won’t get into specifics.
But it just goes to show that as computer power increases, the potential grows. I am quite interested in this area, as most of my trading is more or less based on these concepts. The resources online are very scarce and mostly found in academic journals, so anything would be appreciated.
Regards,
Clark
I know we already have software that does this, but it is flawed.
A bad tradesman always blames his tools.
Just kidding.
One reason we are not in this game at them moment is spread. It just costs too much for us to execute the trades.
If you can get lower costs per trade it would be a game changer.
Well, depending on your account size, your spreads can get better. Not a ridiculous amount, but still an amount that will make a noticeable difference.
haha! it applies to coders and non-progammers alike!