The Online Investing AI Blog

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It’s a little early for Halloween, but Paul Farrell manages to scare up a spooky vision of an investing singularity at MarketWatch.

Farrell’s view of the Singularity is dead on: machines are getting smarter and they’re being used in investing. Although this isn’t something new, computers are much more powerful today thanks to the law of exponentially increasing returns.

For Farrell, this is a bad thing. A dire thing.

Farrell points out that HFT-Quants (High Frequency Traders who use Quantification techniques to trade) are using this incredible technology to snap up returns before anyone else gets a chance to take advantage.

This is leaving the retail trader, i.e. me and you, out of the market.

How accurate is this assessment? How scary is his conclusion?

Read more…

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If you’re not sure what the black swan is, check out the book by Nassim Nicholas Taleb.

Essentially (and I’m vastly over-simplifying), Taleb’s point is that your brain is fooled by randomness and that you must be able to recognize the large-scale events that can cause massive and chaotic change in the market.

Taleb refers to these events as “black swans,” based on the notion that everyone believed that only black swans existed, when, lo and behold a species of black swans was discovered it.

To simplify this even more: S**t happens.

The question for me, since I’m interested in how technology can predict asset movements, is: how can we predict a black swan.

I don’t think you need to. The problem isn’t that there is an agnosticism about black swans; the problem is when investors cling to white swans and aren’t nimble enough to jump on the long neck of the black swan.

I believe that technology is suitable adapted–or could be adapted–to not only recognize a black swan moment, but also move assets and change positions into its flight path.

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