4 ms·
If it's completely untrue, then I'd like to hear about how your computerized trades ever "discover" a good deal. I'm fairly sure this is the answer: They don't
by crux_ 17y ago
If it's completely untrue, then I'd like to hear about how your computerized trades ever "discover" a good deal.
I'm fairly sure this is the answer: They don't -- instead, they're just good at noticing, very quickly, the actions of the market actors who do. Which is just another way of saying that they're about beating others to the deal.
(I'd also guess that they're probably also quite good at handing recreational day-trader's asses to them.)
- ad 17y agoIt's a little less black and white. Suppose I put a guy with a physics PhD in a dark room for a while and he tells me 'with 99% probability, a stock with a price-to-earnings ratio of under 10 will beat the S&P 500 the next year". So whenever a stock's ratio gets below 10, I buy the stock and short the S&P 500 and wait for the bags of money to arrive. In that case, I'm not really relying on noticing the actions of others who have discovered a good deal. Yet, I am keenly interested in beating anyone to the stock when the ratio gets to 9.99. In reality, the market signals are more complicated statistical relationships, they could just as easily arise from someone being very dumb, instead of very smart. Or just the result of random variation that day.
- crux_ 17y agoAnd yet, even for your hypothetical, you use the term "market signals." ;) If you look at markets through an information-centric lens, it seems possible to draw a clear distinction between actions that introduce external data and those that are pure acts of deduction, no matter how brilliant.