The rise of ALGO and demise of experts

With utmost respect for all market analyst, economist we have to face the reality that market movement has drastically changed since introduction of Algorithmic trading platforms. Interest in algorithmic  is faster, cheaper, and analyses all data with a huge bias towards headlines.

Traditional traders use technical analysis to take advantage of short-term price volatility. However, the rise of Algorithmic trading platform has decimated many professional traders account because it factors the news and headline in real time.

For example, S&P500 was trending up but it went down when Chinese news media stated their “Cautious”  about optimistic tone or the US administration about phase one deal. So, momentum traders went short on S&P500. Then Larry Kudlow step in and said trade talk “Progressing nicely”, followed by Trump tweet then market changed with no warning, burning all the shorts. 

 

Wall Street has always been was irritated by the ability of experts to predict the market. So they found a way to keep the upper hands  with ALGO headlines driven trading platform. Analyst and economist been saying market will go down for over a year, since Sept 2019 repo spike the warnings sky rocketed, but nothing happened. The issue didn’t go away but the ALGO trading algorithm unlike human judgment listens and react to the news headline regardless of their validity. Sure, what experts are warning is lurking like a sleeping bear in the background, but ALGO trading ignores everything experts thrown at the market. ALGO, cares more about “IF”, “Maybe”, “BUT”, “China deal in in the Bag” then any expert expert opinion. Hedge funds can tweak also rules to include popular phrases such as “China is in the Bag” used in Trump tweets to move the market.

These are changing times and we all need to adopt with the new reality of how technology changing. Market experts need to wake up and re-invent themselves or face declining subscriptions. Same argument goes for managed funds.

ALGO is a double edge sword. Why people should pay any hedge funds to manage their investments when ETF passive index you can trade performs better, simply responding passively to Algo price action decision. All over the world passive ETFs are on the rise because experts opinion doesn’t matter.