Higgenbotham wrote:
> I was listening to a TED talk yesterday where the speaker was
> talking about areas where computers have overtaken humans. One of
> the examples he pointed to was trading algorithms. He showed a
> photo of a trading floor and said the humans don't really do
> anything except run the computers.
> Since the market topped out, I believe I have beaten the algos
> every single day except one, both on the up days and the down
> days. And it hasn't been close either.
Speaking as a Senior Software Engineer, that makes sense to me. The
programmers writing the code for the algos have to anticipate every
possible situation in advance and program the response in advance, and
obviously they can't think of everything. You, on the other hand, are
operating in real time, so you can respond to the current situation,
based on your experience, and that gives you a big advantage over the
algos.
Or at least some algos. After the success of Watson and AlphaGo,
there's no doubt in my mind that even with today's technology, someone
could write a super-algo that could crush you or any human. It
wouldn't surprise me to learn that someone already has.
But that isn't most algos. Most algos today are written by someone
who follows rules like, "If a stock price goes up 3 times in 37
minutes, then sell; if it goes down two times in 18 minutes, then
buy." That kind of rule might work well enough to beat an ordinary
human, but it's competing against a growing number of algos with
similar rules, and experienced humans like yourself can beat them.
So I would split up the investment community into ordinary humans,
experienced humans, ordinary algos, and super-algos. If a super-algo
has been developed at Watson Research Center or elsewhere, then its
use is currently being restricted or is top secret, as unleashing it
on the world for widespread use would cause huge distortions and a
major panic.
Nonetheless, it's coming. As the technology gets easier to use, it
will be developed in someone's basement or in Europe or in Japan or in
China. At some point, there will be widely available algos that can
easily beat even the most sophisticated human. We keep wondering what
will be the trigger for the financial crisis, and this is one more
candidate.