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If most trading is based on algorithms, wouldn't the market become predictable?
by Rinum 15y ago
If most trading is based on algorithms, wouldn't the market become predictable?
- nkassis 15y agoNot exactly, it might be deterministic but that doesn't mean you can predict what will happen without running it. Same as understanding the forces of a hurricane doesn't let us make very good prediction on it's path without using huge amount of computer power to run the simulation. http://en.wikipedia.org/wiki/Chaos_theory http://en.wikipedia.org/wiki/Chaos_theory
- jsmcgd 15y agoThe culmination of the high quantity and frequency of the trades makes the relatively simple individual operations chaotic when considered in aggregate. Much like the weather.
- nandemo 15y agoEven if the automatic trading becomes a majority of the traded volume, the impact of human trading might still be higher. That is, it could be that most of automatic trading doesn't move the price much in average, while human trades make the price jump more (in reaction to news, mergers, etc). Human trading can only be eliminated if someone develops strong AI. Besides, a lot of what is called algorithmic trading is driven by human, "manual" decisions: say a fund manager wants to buy $10 million worth of stocks someone composing the S&P 500 today, without raising the price of ACME too much, so they use a piece of software that does that automatically.