If anything, I'm inclined to think that program trading increases the likelihood of trending moves as a computer will likely not get shaken out of a position because of size on the bid or offer. The instrument would actually have to move in order for it to execute whereas a prop trader chugging down his pepto would likely try to front-run big size. Think about if this WEREN'T the case... nothing would ever move. I believe we're in a trading bubble and once all the scalpers (I'm referring to people who trade solely off of Open Book order flow) are shaken out, they'll likely get on board and deploy a less random strategy. In addition, most size is being siphoned off by hidden order books the likes of Pipeline, Liquidnet. It's been a good ride for the scalper, but it's on it's last leg. In the end, I think that program trading is a net positive.
I've been analyzing several market prediction systems and trading systems. The best I've found it's based on chaos theory from the physics science. The motion or the results of crowds decisions can be predicted the same way you can predict climate based on models. There are many books on the subject. I found several recommendations on this page. http://www.tradingpro.com/Research.html Even I saw an Australian Film (The Bank) that describes the concept. Theoretically you can think about the market as complex system that has inner dynamics that are some times disturbed by external influences (News). Iâm posting some market predictions that Iâve obtained from this site http://www.predictionlabs.com that show what their system predicts. They say they can predict the market at 9:30 for the rest of the day. Not all charts are great but in some cases they are really predicting the market path. The black line is the prediction, the red line is what the market did. What I finally think is that at the end of the day, it is very possible for the market volume to be almost 100% automated and predictable. Not with 100% accuracy but enough to make money. Any thoughts?
Hi Learner, Do you have hard numbers on your statement? I mean is there any RANK of Program Trading performance, where we can deduct that 78% of program traders are loosers? Thanks for your info. Dan
It's a little hard to trust your money to a company that can't spell fourth correctly: http://www.predictionlabs.com/papers/WPV1.1.pdf I got stuck on that - I guess I should look at the actual returns as well...
Yep And the way that the education system is going at the moment it is set that therre will be even less discretionary traders in the future. Most kids educated these days cannot think for themselves, nor can do any mental arithmetic. Just go to any convenience stores and notice how they cannot give you change without using a calculator / looking at the till. They think all the knowledge is to be found on the internet and when they don't get spoonfed then they get angry and abusive. Maria
I disagree. The most curious young minds have access to tools that speed their learning. The top kids are much more advanced at their age than their predecessors. Kids in general can smell bs faster and are, thus, a harder group to market a product. Society is more open and accepting of superficial diversity; radical ideas are better accepted. Tradition and authority are questioned. Every kid thinks they are entitled to something while being barraged with media images of fast money and fast living (ie. Chris Moneymaker). The recipe for discretionary trading.
If what you say would be true then there would be percentage wise more succesful traders today than that there were for instance before the availibility of personal computers. Yet extensive studies have shown it is not. If you get the right mentor then the tools will help you to make less mistakes but orginal thinking and figuring out what to do and "inventing" a better system.... hmmmmm..... My late father worked at one stage of his career at a third level educational institute, just during the time that personal computers started to be made available to the students. The universal complaints of the professors was that all the focus became on "make up" of the assignment rather than on the contents of the assignment. As one mentioned it aptly: "I would rather have an assignment handed in with lots of lines crossed out than this cosmetically perfect assignment. In the old ways I would know what had gone on in the mind of the student and how he arrived at his answers, in the "modern" way I have not got a clue where he got his crappy ideas from. Was it my teaching or was it something he read on the internet and literally copied?"
I can literally count on one hand the number of people I went to college with that were able to maintain a successful career in a science based discipline. This could be a product of my social circle, however, I believe this is because of the above quote. Good managers spot out good critical thinking and analytical skills in very short time - especially in the Engineering environment. Most graduates simply do not develop these skills in school, some will develop these on the job, however, this is the reason it is difficult to get a good job out of school without some sort of professional experience. In the academic atmosphere (mostly undergrad - grad school tends to weed out these types), students are not required to think - they are required to regurgitate massive amounts of information. From my experiences in college, a lack of self directed reasoning was usually accepted by professors who do not have enough patience to make a difference (nor did I think that many actually cared). Very few of my classmates ever reasoned their way to an answer, however, there was an overwhelming desire to find the magic formula via a clever use of resource (internet, text etc.). People stressed on finding the answer rather than the thought process behind it. I refer to these types (jokingly) as keyboard monkeys. You put a 100 of these guys in a room with an Internet connection and give them a problem they will eventually find a solution (give them a 100 years and they might also come up with the next great novel). On the otherhand, you put one guy in a room who can think for himself and while you might not get the perfect answer, you'll probably get some really great original ideas that when further refined prove to be absolute gems. What does this mean in terms of markets and a discretionary trader? Well, I believe it requires three very strong traits to become a good discretionary trader: 1. Superb reasoning and analytical skills. 2. Creative and independent thought. 3. Humility and conscientiousness. I think 90% of people at some level can be taught the first point, the ability to combine 1 and 2 and 3 is where most fail. This is evidenced by the huge numbers of people who purchase systems, newsletters, follow "gurus" and spend thousands on seminars, videos, etc etc. They are doing exactly what the 100 keyboard monkeys are doing in the room I mentioned, they are utilizing resources like the Internet to find all the answers, rather than thinking. The exponential rise of computer and internet use will only make this worse in time. I have heard so many times - "every answer you ever need is on the internet", which is true to some extent. Its easy work to mow through all that (quality??) content and find things you can cut and paste and claim as your own. Frankly, I welcome more program trading along with the keyboard monkeys into the market, it will provide good liquidity and potentially some readable algorithms that can be easily spotted and front run.
I'm arguing for quantity not quality. It used to be, before my time, that technical analysis was the realm of freaks and deviants.