>, and cashing in _when_ the price crashes and rebounds. [my emphasis on "when"] I think the "when" is a huge part of the puzzle. How can an algorithm know t

>, and cashing in _when_ the price crashes and rebounds. [my emphasis on "when"] I think the "when" is a huge part of the puzzle. How can an algorithm know the difference between a flash crash that will get remedied within 24 hours vs a longer period of irrational pricing that takes months to sort out? For example, at the time of the famous LTCM downfall[1], it held several arbitrage positions that were eventually proven right... but they didn't have sufficient capital reserves to survive the short term irrational spreads (Russian default, flight to US Treasuries, etc). I'm not saying that LTCM didn't have many other flaws of risk analysis that would have also caused their downfall but in that one case, it was an illustration of "the markets can remain irrational longer than you can remain solvent." [1]http://www.amazon.com/When-Genius-Failed-Long-Term-Management/dp/0375758259 http://www.amazon.com/When-Genius-Failed-Long-Term-Managemen...