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Human Traders Meet Their Computer Overlords

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Humans can do a lot of things better than computers–but that list is shrinking.

Once, investing and trading solely belonged to humans. Computers were number-crunching machines that helped investors and traders make decisions.

Then, algorithmic trading came along. Trading strategies designed and maintained by computers saw more and more action in the market. Although,there were always people nearby monitoring those trades.

Now, computers have taken another step toward mastering the market.

At a recent conference in Barcelona, Spain researchers released their findings that showed computer model trading agents beat human traders and other computer trading systems.

Dr Krishnan Vytelingum designed the winning strategy with Professor Dave Cliff and Professor Nick Jennings at the University of Southampton in 2008.

According to Vytelingum:

“Robot traders can analyse far larger datasets than human traders. They crunch the data faster and more efficiently and act on it faster. Robot trading is becoming more and more prominent in financial markets and currently dominates the foreign exchange market with 70 per cent of trade going through robot traders.”

The system was originally designed to just beat other robot traders, thumping humans was a bonus.

I think it isn’t just the ability to analyse datasets; robots trade without emotion. Greed and fear are trade killers. That limits big mistakes.

This is probably just the beginning.

 

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  1. Ashish
    August 4th, 2011 at 09:05 | #1

    Hi George,

    Very Good Post.
    I am the reader of this blog for about last 1.5 years.
    Can you please provide , all the information about Forex trading Robots (at least good resources to learn).I am from India , Currency trading is just beginning here.
    Also , when is your own software Online AI Investing coming , let me know . I am eagerly waiting for it.

  2. George
    August 4th, 2011 at 17:16 | #2

    Hi Ashish,

    Actually, this post was written by Matt.

    Sorry, but I don’t really have any information about Forex robots. I would say that most of the software will lose your money, so I wouldn’t recommend purchasing any without being sure that you will make money. Also, be sure to test it on realtime data in without risking real money.

    Regarding our own software, we are still developing it. We are not going to release anything until we are sure it is going to work.

    George

  3. August 7th, 2011 at 12:30 | #3

    George & Matt,

    What’s your opinion of the superfast trading computers?

    Do you believe some companies should have faster access to the markets and therefor a big trading advantage?

    Bret

  4. August 7th, 2011 at 13:11 | #4

    Hey Bret–
    Conflicted. I would really like to see the playing field leveled. But, honestly, like George says, I don’t think it’s an excuse for poor investing and trading. One might even suggest that it will make all trading more efficient.

  5. August 7th, 2011 at 21:36 | #5

    @matt
    That’s the argument the big boys are using, that they add liquidity with their superfast platforms. But, I think that argument is a smokescreen for an advantage to poach spreads from slower traders. I also think it adds to the possibility of more events like the flash crash. I guess we’ll have to see how it plays out.

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