Robot overlords foiled

[pendell]

As described in Time (http://business.time.com/2012/08/02/wall-streets-robot-uprising-quickly-quelled/?iid=biz-main-lede). Evidently the robots which do the trading on wall street got out of the control of their human overlords and did things like buy Wizzard (who's that?) for many times its value.

Maybe they know something we don't?

At any rate, who knew that when Skynet became self aware it would try to buy up the world rather than nuke it, and This would be its song (http://www.youtube.com/watch?v=EAqCbOJc6RU)?

Respectfully,

Brian P.

[Iruka]

... did things like buy Wizzard (who's that?) for many times its value.



This guy, I'd guess.

http://upload.wikimedia.org/wikipedia/en/c/c5/Rincewind.png

At least, that's what it says on his hat. :smalltongue:

[The Succubus]

Fret not, Sir Pendell. For a mere $65,000 (http://www.reghardware.com/2012/08/03/ridable_robo_spider_crawls_towards_reality/), a mere 5% of an Ootstarter, the robots will soon be back on their feet.

[Gwyn chan 'r Gwyll]

Loving that headline!

[Cikomyr]

Makes me think of the Asimov's novels where "The Computers" are rulingnthe world and making it efficient.

A follow-up novel mentioned them, sayingnthatntheir positronic brain achieved sentience, and they determined that the best path for humanity was not to have them, so they self-terminated deliberately.

[Surrealistik]

I can't help but be (at least) somewhat alarmed by stuff like this given that I have substantial amounts of money tied up in foreign exchange HFT EAs and algos; that major equity firms can screw up on this scale comes off as more than a little foreboding to us individual traders, both because they can create sudden and insane market aberrations that drag others down with them, and because of the obvious risks of automation failure they highlight. That said though, I'm always careful to keep a close eye on my programs for precisely this reason, and these horror stories remind me of the importance of being vigilant. While constantly looking over their shoulders may seem ironic, it doesn't quite defeat the point since supervising is _much_ less stressful than actually day trading.

[pendell]

that major equity firms can screw up on this scale comes off as more than a little foreboding to us individual traders


The way it's been explained to me , Individual investors are to finance what krill is to the ocean biosphere (http://orcainvestments.com/page8.php). Small, weak prey that all the larger fish subsist on. Big mutual funds and companies make profits from buying low and selling high. The sucker who sells to them at the low price and buys from them at the high price are the individual investors, who typically have neither the background nor the research credentials nor the responsiveness necessary to compete with the big fish.

Respectfully,

Brian P.

[Surrealistik]

The way it's been explained to me , Individual investors are to finance what krill is to the ocean biosphere (http://orcainvestments.com/page8.php). Small, weak prey that all the larger fish subsist on. Big mutual funds and companies make profits from buying low and selling high. The sucker who sells to them at the low price and buys from them at the high price are the individual investors, who typically have neither the background nor the research credentials nor the responsiveness necessary to compete with the big fish.

Respectfully,

Brian P.

I certainly don't dispute that 90-95% of independent, non-professional retail traders/investors inevitably are demolished by the major players (I believe the failure rate is around 95% with foreign exchange markets), but there are those who do succeed, particularly those that are methodical and systemic, keep a tight rein on their emotions, and yield all the due diligence and attention investing/trading requires. I would consider myself and my grandfather to be first hand examples of such people. Unfortunately most do not, or cannot, yet get involved anyways; they are the ones who consistently get victimized.

[OracleofWuffing]

At any rate, who knew that when Skynet became self aware it would try to buy up the world rather than nuke it, and This would be its song (http://www.youtube.com/watch?v=EAqCbOJc6RU)?
Actually, this little article (http://what-if.xkcd.com/5/) was written by someone who saw that coming. Basically, nukes conceptually pose a bigger threat to robots than to people.

[pendell]

I certainly don't dispute that 90-95% of independent, non-professional retail traders/investors inevitably are demolished by the major players (I believe the failure rate is around 95% with foreign exchange markets), but there are those who do succeed, particularly those that are methodical and systemic, keep a tight rein on their emotions, and yield all the due diligence and attention investing/trading requires. I would consider myself and my grandfather to be first hand examples of such people. Unfortunately most do not, or cannot, yet get involved anyways; they are the ones who consistently get victimized.

What "due diligence and attention" does it require? Is it a full time job for you? Part-time? Something to do on weekends ?

Respectfully,

Brian P.

[Surrealistik]

What "due diligence and attention" does it require? Is it a full time job for you? Part-time? Something to do on weekends ?


To be honest, it really depends on what I'm doing. If I'm actively trading sans automation, it's like a part-time job, otherwise if dealing with 'buy and hold' value prospects it only requires a couple of hours research, numbers crunching and cross comparison. Aside from this, discipline and a solid, consistent strategy are just as important as due diligence and attention. If you let your emotions dictate your actions, causing you to panic and sell off when a stock dips or buy in on greed after a run, you will lose as you buy high and sell low.

Lately I've moved the majority of my money to currency trading/foreign exchange (I prefer the fluidity, trading rebates, relative predictability and difficulty for even large non-government players to manipulate) where I've automated most of the transacting, and allotted the rest to a trader friend of mine to manage. This is because I unfortunately will not have enough time to operate my accounts properly as I transition into my new career full time.

[Jimorian]

The way it's been explained to me , Individual investors are to finance what krill is to the ocean biosphere (http://orcainvestments.com/page8.php). Small, weak prey that all the larger fish subsist on. Big mutual funds and companies make profits from buying low and selling high. The sucker who sells to them at the low price and buys from them at the high price are the individual investors, who typically have neither the background nor the research credentials nor the responsiveness necessary to compete with the big fish.

I was working in a bookstore when the infamous case of the daytrader who, made a million, then lost 2 million [1], then killed his family and himself, made headlines a few years back.

Suddenly, there was a run on books about daytrading because the ONLY part of that headline people read is that he made a million dollars. They ignored that he then lost 2 million and killed his family.

Trying to beat the big brokerage houses by rapidly buying and selling on a daily basis is a guaranteed loss, because you're competing against these robotic traders that make thousands of sells/buys a second. It's like playing roulette in Vegas. In the short term you might come out ahead, but the casino only smiles when you win because they know that's when they've got you hooked for even bigger losses later because they have a mathematically built in advantage for the long run.

[1] numbers rounded off by memory and laziness, feel free to look up the actual figures yourself on wikipedia.

[Surrealistik]

The widespread use of algos is why when I daytrade I automate. I even rent virtual private servers in immediate proximity to my forex broker so that there's less than a 0.5 ms latency on my orders, and use scripts that refresh my trading session so I don't have to spend ~500 ms reauthenticating in Metatrader for each outgoing transaction. You _really_ have to know what you're doing if you decide to daytrade, and you should probably use some form of automation to be competitive.

Most non-professional investors are better served by employing a buy and hold strategy, selecting solid value (low price to earnings and price to book) stocks with a strong balance sheet, performance metrics that are significantly and consistently better than their industry average and preferably the S&P 500, steady growth, and a sustainable dividend above inflation (2-3% or more; bonus points if you can reinvest it at a discount via a DRIP).

[CarpeGuitarrem]

Huh. Things I didn't know.

This is rather interesting, coming shortly after The Dark Knight Rises. Shows it's not impossible...

[pendell]

Thank you, Surrealistik. In other words, if you're an individual investor, it's usually best to find something that is guaranteed to grow in value, then buy in and hold despite peaks and valleys, trusting for long term growth. But unless you're really good -- to use a sports metaphor, equivalent to an Olympic athlete -- day trading to take advantage of momentary price fluctuation is a sucker's game, because you'll never be as fast as the big guys.

Do you have any books to recommend?

Respectfully,

Brian P.

[Bulldog Psion]

Interesting question, though -- would the system work at all without all the 95% prey in there? I mean, if everybody was a winner at the casino, wouldn't the whole system collapse immediately?

Isn't this working pretty much the same way -- those colossal profits are there for the few only because they can financially prey on the many who make mistakes? If everyone was savvy, nobody would make a profit. It's a market based on pure predation, as far as I can see. Not on adding value, not on a unique product or a better service -- just on sticking it to people who don't have the same access to information that the few successful players do do.

[Gwyn chan 'r Gwyll]

Interesting question, though -- would the system work at all without all the 95% prey in there? I mean, if everybody was a winner at the casino, wouldn't the whole system collapse immediately?

Isn't this working pretty much the same way -- those colossal profits are there for the few only because they can financially prey on the many who make mistakes? If everyone was savvy, nobody would make a profit. It's a market based on pure predation, as far as I can see. Not on adding value, not on a unique product or a better service -- just on sticking it to people who don't have the same access to information that the few successful players do do.

I'm fairly certain that you're 100% right there.

[Surrealistik]

Interesting question, though -- would the system work at all without all the 95% prey in there? I mean, if everybody was a winner at the casino, wouldn't the whole system collapse immediately?

Isn't this working pretty much the same way -- those colossal profits are there for the few only because they can financially prey on the many who make mistakes? If everyone was savvy, nobody would make a profit. It's a market based on pure predation, as far as I can see. Not on adding value, not on a unique product or a better service -- just on sticking it to people who don't have the same access to information that the few successful players do do.

Access to the raw information needed to make an informed decision is actually pretty egalitarian, though there will always be forms of insider trading and institutional investors have superior means to distill information because they employ full time analysts. The deficit of non-professionals has mainly to do with lacking a coherent, consistent strategy, the time/willingness to learn and perform adequate comparisons and securities/stock analysis and/or letting emotions dictate action.

That said, yes, trading on the secondary market in equities as a rule doesn't really produce anything of value; it's chiefly a game of shuffling money and assets. However, primary distributions/initial public offerings (IPOs), which produce the equities traded on secondary markets _do_ directly add value to economies by providing firms with important venture capital, so they can further expand their business.

Trading on foreign exchange markets is mainly speculation driven, but does add value/utility in that their size and popularity makes for extremely fluid currency conversions.



Thank you, Surrealistik. In other words, if you're an individual investor, it's usually best to find something that is guaranteed to grow in value, then buy in and hold despite peaks and valleys, trusting for long term growth. But unless you're really good -- to use a sports metaphor, equivalent to an Olympic athlete -- day trading to take advantage of momentary price fluctuation is a sucker's game, because you'll never be as fast as the big guys.

Do you have any books to recommend?

The former is true yes. The latter not so much; I don't think it's a matter of needing a great deal of innate talent so much as having a mastery over your emotions, being willing to commit to a system, to invest the requisite time and effort in learning how to trade profitably, and having all the right tools.

There are four things you really need if you want to daytrade. Keep in mind this is for foreign exchange (Forex) trading; I don't daytrade in stocks:

#1: An introducing broker (IB). They act like a broker of brokers, referring customers in exchange for a portion of commissions and/or spread paid to that broker from the trading of those customers. They then pay the majority of this consideration back to you, allowing you to either recoup part of the cost of your commissions, or make additional money by effectively reducing spreads.

#2: A reliable, honest, quality broker with low commissions or spread, segregated bank accounts preferably (so your money is kept separate from theirs in the unlikely event of insolvency) and good, integral data feed. Your broker should be located in a first world country, and subject to, and licensed by a regulatory agency.

#3: A Virtual Private Server (VPS) in immediate proximity to your broker's servers. You should aim for a 2ms latency or less between your VPS and the broker's trading server. The idea is to maximize the speed of your orders, and get advantageous prices before others do.

#4: An excellent Expert Advisor (EA), otherwise known as an algo or a bot. You want your trading to be as automated as possible, so you eliminate emotion and minimize delays in your trading. You'll want a year or more of independently verified, consistent positive performance in a live cash account from a site such as MyFXBook (https://www.myfxbook.com/) with respect to a prospective EA's performance history.

It should be noted that even though your trading will be almost exclusively automated, you should acquire a basic understanding of Forex strategies and order execution before transacting with an EA. You should also understand the fundamentals of your EA's strategy, and the kinds of criterion/indicators it responds to. Turning off your EA on days with important economic data/news releases like non-farm payroll, growth and unemployment is probably a good idea to avoid taking on excess risk.


Alternately, instead of 3 and 4 you can simply pay to have someone manage your money. Researching a prospective manager in detail is essential, and you should always require at least a year of consistent, positive performance.

Forex Peace Army (http://www.forexpeacearmy.com/) is a great place to go for extensively peer reviewed and objective recommendations and analysis of various Forex brokers and products as above. I'm willing to provide specific personal recommendations if you like.


So far as books go:


The Intelligent Investor by Benjamin Graham


Security Analysis: Principles and Techniques by Benjamin Graham and Dave Dodd


Common Stocks and Uncommon Profits & Paths to Wealth Through Common Stocks by Philip A. Fisher


Stocks For The Long Run by Jeremy Siegel


The Theory of Investment Value by John Burr Williams


Take on the Street by Arthur Levitt


Bull: A History of the Boom and Bust by Maggie Mahar

[pendell]

Thank you! Very interesting.

Respectfully,

Brian P.

[Surrealistik]

Separated out #1 into two entries to avoid confusion; Introducing Brokers are very different from your de facto broker: the former refunds part of your spread/commission costs and the latter executes your orders.