Who is Better at Stock Market Trading – Humans or Robots, Part 2

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Thank you all for taking the poll in the my last blog post (see the post immediately before this one). At this time over 2,000 people answered each question! That’s amazing and thank you for participating.

The results are clear – about 2/3 of the voters think humans are better traders than computers, and about 2/3 of the voters believe that the wide spread use of automated computer trading is a bad thing.

These results actually surprised me. With the rising popularity of trading “robots” that are marketed so heavily, and purchased so readily, I thought that most people would favor automated, computer trading.

But the response seems to indicate that the majority of us humanoids have a distrust of giving too much power to computers. Perhaps this is part of what made movies such as “2001 Space Odyssey” and “The Matrix” so compelling.

The debate is far from over and will continue to rage on since computerized trading is already firmly entrenched in the trading world.

As I read through the over 30 comments posted by you, I was very impressed with your insights. In fact, they were so good that you didn’t leave me much more to say! But since I’m expected to add to the conversation, here are a few thoughts:

As with many things in life, both sides have some strong points and some weak points. Here are a few of the most significant to me:

Robots (Computers):

  • Positive:
    • No emotion.
    • Trade the rules consistently.
    • They don’t get tired of watching the markets.
    • Can process a massive amount of information fast, with precision and accuracy.
    • Major companies use them successfully.
  • Negative:
    • Amateurs use them mostly unsuccessfully.
    • Technology is not perfect and no program is without errors (“bugs”).
    • People still monitor their computerized trading systems and often override them when the draw downs reach their personal emotional pain threshold. Thus they do not completely eliminate the interference of human emotion.
    • The history of automated trading is far from perfect.
    • They still require human oversight since they can encounter technical problems (loss of power, internet connection, etc.)

Humans:

  • Positive:
    • Someone who has mastered trading develops a feel and intuition for trading that is beyond even their own conscious mind.
    • The human brain is still more powerful and complex than a computer. We still haven’t explored the full depths of the brain and it’s capabilities.
  • Negative:
    • We get emotionally involved which may lead to breaking the rules.

A few other observations I’d like to add:

  • Major companies that trade massive amounts of money do use trading programs, and often use them to a great extent. With the tremendous resources they have at hand, both in the area of talent and capital invested in creating such trading programs, it must be acknowledged that alg0rithmic trading has a tremendous amount of validity.
  • On the other hand, most amateur traders who buy trading robots are not successful with them. Such robots are not to be compared to the programs that professionals use. Therefore to say that you should use a robot because the professionals do, is not a completely valid point.
  • Computerized trading is not THE final answer to trading success. If the markets were traded completely by computers, without any human traders, there would still be winning computers and losing computers since that is the nature of the market buy/sell dynamic.
  • Trading programs definitely have a clear advantage over human traders with regard to trading the rules strictly, without emotion, and also with regard to their ability to access tremendous amounts of data to calculate probability scenarios (thus the reason that computers have been able to out-perform chess masters).
  • Experienced traders, who have reached the level of mastery, trade based on factors that they are not even conscious of any more. They have internalized their knowledge of the market to the extent that much of their expertise lies in their unconscious. Thus, unlike the amateur, their intuition is to be trusted. This knowledge, developed through massive experience and putting in their “10,000 hours” is so internalized that they cannot even express it consciously to teach others or program into an algorithmic formula to be replicated through a trading computer.

So there you have it – the final definitive answer!

Has algorithmic trading changed the markets? Yes, absolutely.

Is it good or bad? I don’t think there’s a clear answer to that.

Is it better than human trading? It depends on the computer program and the human trader you’re comparing.

Does my Top Dog Trading method still work in this era where over 1/2 of trading activity in the stock market is made by computers? Yes, because my method simply measures the “Energy” in the market regardless of who makes the trade.

A trend (direction)  is a trend whether it’s created by computer trades or human trades … in a similar way whether a turtle is going East or an cheetah is going East … looking at a compass tell you they are both going East, because East is East regardless of what animal or object is going in that direction.

Thanks for participating in this discussion and please leave your comments below.

10 COMMENTS

  1. Well, Being thought that I’ve lost so much money by using automated software, I like to stick with broker or advisory of some sort. It’s too easy to get caught up in a software when all the bells and whistles are flying.. That’s when you lose money fast.

    my two cents.

  2. I tried one of those programs on automated trading. It ran in the background on my pc when my pc was on. They said it took about 5 days to get in sync, and then after that the signals would be coming every day.

    I let it run for a month, jotted down the buy and sell signals. And the result was:

    a slight loss if I would have taken all the signals.

    don duhon

  3. To follow the rules or not to that is the question we make, but the robot is unable to…

    I vote for the human that built the robot…lol!

    Does a robot have the ability to interpret fundamentals..,? I think that’s where humans have the real advantage.

  4. I would say it very much depends on your belief system.

    Can a market be beaten by applying consistent rules and formulas?

    I believe it can’t. The point is, markets keep changing and, as Barry has said, everything works, SOME of the time.

    My favourite analogy is applying and learning skills to play a sport to a high level. No matter how skilled you are, you won’t win every game, but if you apply your skills and knowledge consistently, you should come out ahead in the long run.

    That play you tried last week, may just not work this week, or not as well, and you might lose. But then it might work ok the next week. You win by finding a way to stay in the game.

    Thats why I believe, long term, robots would not be able to beat the market.

  5. Yeah your right Barry, when the ‘Energies’ all align it doesn’t matter who’s behind it, you never truely know until it over anyway, if at all. Money is dumb, it doesn’t care who it goes to. Just pull the trigger and manage your position, sometimes you’ll win big, especially the ex-con and eagle eye, other times it’s small or a scratch, but rarely do you lose much. With your style, properly executed, I haven’t had a losing month, week and rarely a losing day! It engulfs most and just gets better the more you study it.

    Thanks a Million!
    Paul

  6. Thanks for the article.
    You have articulated well that we have FAR more potential then give ourselves credit for.
    YET we must still apply a well thought out trading plan with discipline, persistance and courage to be sucessful.

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