Market efficiency

Discussion in 'Trading' started by themickey, May 20, 2012.

  1. If as time goes on the markets become more efficient, what does that mean for the trader?

    Efficiency meaning that finding a profitable edge becomes more difficult.

    Does that mean that as more and more smart brains enter the arena it becomes harder to make a profit?

    Will there come a point in time that it will be very difficult to make a profit as faster and smarter scalpers continue to pick off the winning edges.

    Does that mean price behaviour will become more random?

    Do traders themselves become more efficient, smarter, less naive, more cynical, less trusting, more competitive where we enter a world of dog eat dog until we all die?

    I'm a bit concerned about this, Where will it end?

    Sorry about all the questions and I wasn't sure where to place this post, I was thinking along the lines of futures trading, but perhaps it can apply to all sorts of trading.
    Computers have helped us advance, but also made us more competitive I believe, margins are becoming slimmer even in retail sales due to online access to markets.

    Perhaps the people to win the most will be those with the cheapest costs, look at the chinese, but they too are now experiencing inflation, next country might be india and so it goes, on and on.

    I'd appreciate your thoughtful inputs.
  2. jupiter12


    I think "trading rules" (the market) will be changing more frequently with the time. It will not became more random. We will see that classical TA will be absolutely worthless and some other rules will arise. I beleive in ATS, this is the only what one can earn money with.
  3. Dura


    If it doesn't become more random shouldn't TA be as true as it is today? I believe the market will change some, however human nature may always stay the same. Thus the overall market will likely follow suit.
  4. But as bots play more of a role, will it be "human" nature that matters?

    Or, as humans code bots, perhaps it IS still human nature that will count?

    Except that some strategies "learn" independently of their human coders; and in so doing may be learning to react to "bot" nature rather than to the human kind ...

    But is there still going to be a market for capital? Capital markets have existed for millenia (or more!), and should continue to do so for as long as there is supply of and demand for capital. Market microstructure will change, but there will always be some way for someone to make money by participating in the market as a market maker or speculator/investor ...
  5. Perhaps the ultimate "bot" algorithm and the best human trader algorithm will be one and the same. You cannot dismiss the possibility a priori. It is possible that the "best" thing a bot could learn would be to exactly replicate the trading strategy of the best human trader. There's no reason to assume that simply because computers can process data faster than humans that the conclusions those computers draw would differ from the human who was best at drawing conclusions from data.

    Once you completely remove emotions from your thought process, I'm not exactly sure what residual "non-bot" aspect would exist in your thinking.

    When machines finally become self-aware, I'm sure that I will get along quite nicely with them and find them much more pleasant company than most homo sapiens.
  6. markets never achieve full efficiency because of overleveraging and greed and black swan events.
  7. I've always thought the entire "efficiency" argument to be completely useless.

    "Efficient" compared to what? It's not as if there are two markets, one control market which we know isn't efficient and a second market which we are comparing to that inefficient one. Any conclusive scientific determination of a thing's attributes requires some kind of control.

    If "efficient" only means "no positive risk-free returns are possible", that says absolutely nothing about how many ways there are to take on risk and earn a return, so even if the market becomes more "efficient", there will always be ways to take on risk.
  8. a bot can't predict natural disasters and terrorism. when bots are programmed to assume that these events are outliers and when they do happen, their human developers always override and behave irrationally
  9. There are "prediction markets" that try to predict these, though, so a bot could be hooked in to the current probabilities for these outlier events.
  10. I'm assuming that trading 20-30-40.....years back was not so complex.
    I'm assuming that simple T/A back then did work, eg trends were longer and intraday volatility was not such as it is today where more and more HF pickers are in attempting to nickel and dime the market.

    I'm assuming possibly T/A did work decades ago because trends were longer, hence all those T/A books years ago.
    I doubt T/A books are written now except for the out and out scammers attempting at deluding noobs.

    But back to the main point, I believe trading is becoming more competitive, life is becoming more competitive, work, retail, business, housing etc.

    Generally speaking, does the country/people with the lowest costs survive while the rest of us sink?

    Maybe this is a circular argument, life was always competitive, just in trading one is more aware of it.
    However I am concerned that trading may implode with the advent of smarter computers where the man on the street who wishes to trade or invest at his leisure no longer has a look in.
    #10     Jun 19, 2012