The Future of Trading (99.9999% automated trading and how it will work)

Discussion in 'Trading' started by Newmoney24, Apr 5, 2013.

  1. I'm gonna keep this post short and simple-

    1- automated trading is taking over the markets. 80% of trades are done via automated trading already(in 2000 it was significantly less, I want to say around 20-30%). it's only a matter of time till its 99%, then 99.99999%

    2- automated trading is done via pattern recognition, and often trendlines as I've witness live many times. (its crazy how perfectly breakouts move when running the trendline) -or how support holds.

    3- the shorter the time frame, the larger returns (over the course of a year).
    For instance, most humans invested in the markets right now would be happy w 20% returns. however, automated trading follows trendlines that would offer say a 1000% (or much more) return. The only thing is that these trendlines are often only around a few hours long.

    But this is not really a problem, because when that trendline is up, there is many others waiting.

    Indeed, the computer for instance, has an array of trends to pick
    1 could be a 1000% ROI
    another could be 900%
    another could be 800% (but this one may have the strongest pattern, and thus the computer may select this one)

    ^note that these are ROI's over a year(and the trend for that particular trade very likely wont last a year, more likely a few hours or even just an hour or less- but once its done it picks another- with the highest return and strongest pattern possible).


    More in regard to the shorter the time frame, the larger the potential returns:

    We will move into an era where trades take less and less fractions of a second.
    ie: if the fastest trade today is 1/1000 of a second,
    10 years from now it could be 1/1000000 of a second.
    And these shorter time frames offer potentially higher and higher ROI's, (say 10,000% roi)(and the trend may only last a few seconds or fraction of a second- but again it can move on to another trend right after)


    how does this effect human traders?

    well, if you're getting a 20% return, but a machine is getting a 1000% return, that machine is going to take your money sooner or later.

    this can be done by the money supply increasing (thus devaluing your position)


    it can be done by simply crashing your positions, which would nonchanantly happen as the machines naturally maximize their return (which can be done by crushing your positions when they approach a support line (at which point the machine applies pressure(buying or selling power to break your trend), breaks your trend and flushes your position, all seemlessly, emotionlessly).


    there is more to this, as eventually it becomes machines against machines (no human involvement), and it would appear the fastest machine wins (as it gets the highest ROI trading on the shortest time frames)

    what are your guys thoughts, give me your feedback
  2. ehsmama


    To Make Money - You need an Edge
    No Matter how Fast or How slow you are it doesn't Matter
    Edge of a Lion is its Size
    Edge of a Cheetah is its Speed.
    They both operate in Same Jungle but but hunt different prey
    So no matter how computerized the World gets..We need An Algorithm - And that again needs a Human to think
  3. vicirek


    When looking at automated trading share one has to realize that this is normal process of automating human activity by using computers and must be differentiated from pure algorithmic trading with its own decision making.

    If you look at the floor of NYSE decade ago it was crowded. Now they have to use extras to show live person moving there. Hence 99% automated trading figure is misleading and too general.
  4. s0mmi


    You seem to be confused.

    You think that all these algorithm-based, automated trading machines have some sort of black box type of thinking out of nowhere which gives them an edge? No, the only 'edge' they're getting is from speed of information read based on reaction.

    They don't use magic. So what information are they using? These bots are using exactly the same thing a discretionary trader users in a slightly different way. Let me further clarify why this means you can still trade in the future and it won't be all bots:

    1. If you make 10 trades a day using your 'edge' to make $1000/day average this is equivalent to
    2. An algorithm using the same 'edge' to make $1000/day but doing 100 trades a day, and using 10% of your size

    Basically, what the above guy said is true. No matter what, you need an EDGE. If these bots are trading off estimating predicted order volume or correlation

    So what this means is, if you cannot adopt, and an algorithm can replicate your EDGE, then you're already not making money. And you will continue bleeding. For example, if you try to make money based off 1 or 2 tick correlation by sight, then you will get pumped because basically ALL the bots are doing this same stuff.

    NOW, let me give you one small example of a profitable strategy and how you can continuously avoid being chewed by bots every day:

    1. Develop a view on something like the Interest Rate Curve. For example, let's say after a specific FOMC meeting you're convinced that the Federal Reserve will start hiking interest rates.

    2. Start trading your 'fundamental view' of this product intraday. For example, start shorting the curve in a specific way that you wanna choose. Literally, just keep trading that 'view' in your own unique way every day until that change happens that you're looking for, perhaps it takes 2-3 months perhaps it takes a year

    So there, there's 1 example of a strategy that a bot cannot simply replicate.

    if your strategy is as simple as basic correlation or 1-2 tick scalps based on pure randomness, then you will get chewed up and beaten because you think your edge was speed and reading small fluctuations of order flow.

    There will always be room for discretionary traders. ALWAYS. Its PEOPLE in the INSTITUTIONS that make big decisions based on data coming out or new ideas and moves.