Human Mind Vs Algorithms: Stock Trading and Technology

Capital Markets CIO Outlook | Friday, March 29, 2019

Algo trading or automated trading follows a pre-assigned set of instructions to trade for profit generation at a high rate. An algorithm is prefixed by rules based on price, timing, quantity, or any math model. Algo trading provides liquidity and a more systematic approach to trading, which rules out human emotions factor. The algorithm is programmed to monitor the price and trade when it is stimulated. The investor no longer has the necessity to follow live demographics. The system is trained to identify business opportunity automatically and respond.

Manipulation of the market with fake news exploits traders who are not aware of the happenings. Algorithms follow the data available on site, but if the data is false and the algorithms respond to it negatively, traders are hurt big time. Defensive strategies by companies will disrupt the algorithm. Hence human traders are required in traders to avoid feeding the algorithm with fake news. Human traders can conceive the news and cross verify with various sources to check credibility. The most common strategy by the algorithms is trend following; this method doesn’t involve predictions or price forecasts. This strategy carries out trading in a straight method without any complexity involved.

It is not simple to follow algo trading because the majority of the traders are aware of the functions and strategies. There are system failure risks which will abruptly cut short the trade and network connectivity error that will stop the flow in computing. Before the algorithm is put in force, it requires a lot of testing to ensure that the correct algorithm is employed. Trading on the stock market requires the help of a stockbroker. Financial markets are fully automated; hence, it should not be interconnected to other technologies because it can threaten the existence of the financial system. Human touch and emotions are required in any field because complete elimination of human need will make the function null. Certain decisions must hold emotional value and deep research skills to prompt downfall. Experts believe that another recession will help them understand if complete automation is a solution or there will be a need for a human trader.

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