Discretionary Traders Vs Algos - Discussion


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This is something that has played on my mind recently and wanted to start a discussion on it to see what other people's views are.

Man Vs Machine - Can discretionary traders take advantage of algorithms in the market and profit by doing so?

My view is that until a singularity event happens where a general AI is created that can critically think and adapt better than a human then every algo is just a form of a rational step by step process(both simple and complex) which are pre-programmed by a human being(possibly by machine learning/AI, but this would still need significant human input without a general AI).

If a market is mainly formed of human beings then understanding human psychology and controlling one's own psychology is the way patterns can be found and taken advantage of. However, in a market that is being made up of more algos than humans those same patterns may not still exist. That doesn't mean no patterns exist, they would be instead based on understanding the underlying step by step process of the algos themselves or the unintentional human psychology built into the algos.

In my view it may be even simpler to find algo patterns rather than human patterns because algos are 100% rational. For example, if you knew an aglo will do a after xyz and b if not then this could theoretically be taken advantage of.

Clearly this is easier said then done.....

I might just be thinking garbage. What's everyone's thoughts?



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I think you're over-thinking it.

Whatever any algo does, a (mostly) rational human being told it to do so. Algo's aren't 100% rational, they don't have a choice, they're just 100% obedient. But humans do have a choice between rational act or irrational act and this choice can be exercised either consciously or sub-consciously.

Other humans in the market are competitors and they know this, so they can behave rationally through what looks like an irrational act in order to take advantage of an irrational competitor.

Actually, maybe there isn't a way of NOT over-thinking this.
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to tell you the truth, sometimes I think that humans do have a choice, but they may be so stupid to do irrational things and say that they're absolutely rational( Besides, when it comes to poker, I personally found just one servicing where I can gamble for free at first and then check if it's worth it or not, but it's free of charge, which is actually surprising. I thought of trying poker stuff in order to have a possibilty of winning big money , however I decided to stop this gambling stuff as soon as it would be possible. However, it happened too quickly, I was expecting a month or so for thinking i I need this. I suggested this source to all of my classmates, they were actually happy))


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Algo trading is always a mix of machine and human brain. An "AI" program was made by a programmer, and execute what the programmer told it to do. There a billions of different algo ideas/variants, the human brain has to filter which ones to use or focus at, using a software tool.

The other part, "can a discretionary trader take advantage of algo trading" .... algo patterns. Good theoretical idea, but not operational. How are you going to know a specific trade was placed by an algo, and which algo ? An alternative approach would be to use algoes, but trade them discretionary. Or use an algo to monitor an open position, or to call you when interesting events. Thus the steps towars full automated trading would be first to use algoes to alert you, monitor -and then extend automating more and more.
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