what are "BLACK BOXES"

Discussion in 'Trading' started by hitman4gk, Feb 7, 2007.

  1. please explain what they are and how traders use them..
  2. [​IMG]
  3. They have nutmeg for brains.:eek:
  4. Ya know Wayne, seeing that picture reminds me, the black box always survives the crash.
  5. ==============
    Good things to stay away from ,
    Bright Trading Co doesnt like them;
    and might be a rattlesnake in them.

    If you like mystery/utility, get a black trench/rain coat[i have ];
    surviving a crash sounds like you stayed on the right trend & position size. or have a praying grandma, or all of the above.

  6. The term "black box" is used interchangeably to mean multiple things in trading:

    1. A technical indicator which uses an unpublished and/or undocumented specification. You feed in the price/volume info, and out comes some number, such as 89.5, which presumably tells you where the market is headed.

    2. A trading strategy. Again, you don't know how it works inside. Instead, it uses your quote feed to do its internal calculations and to generate "buy" and "sell" signals. You can then take or not take the signal.

    3. A fully automated system. That's the whole 9 yards in one box. You specify your trading rules, go play golf, and the "box" does everything else for you: monitors the market(s), buys and sells, and generates reports.

    In all three cases, the term "back box" is used to indicate that you don't fully know what's going on inside. Instead, you feed some signal to it, and out comes something else (which can hopefully be transformed into money).

    The fact that it is a "black box" doesn't necessarily mean that it's a bad thing. Your car, computer, TV, and refrigerator are also black boxes, unless you are their manufacturer. However, it the trading world, the "black boxes" sometimes have a bad reputation because of the unscrupulous vendors making unrealistic/unsupported claims about their boxes' performance.

    In the last few years, the third variety of black boxes (fully automated trading systems) have gained a lot of popularity, as technology advanced far enough to allow the machine to replace all manual actions associated with trading, which includes not just clicking the "buy/sell" buttons, but also risk management and making trading decisions based on analysis of market data and conditions. These types of black boxes are sometimes referred to as "robots", or just the "bots".

    You may also want to read this Wikipedia article on the topic.

    For full disclosure, I'd note that there are also "white boxes" and "grey boxes", but I'll save that for another thread.