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

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.