If algo trading does most of the volume does fear and greed even apply?

[rangerdanger12]

Most of TA is based upon trading patterns and seeing the psychology of the market and trading with the big boys.

But if most trades are executed by computers who have no fear or greed, who have no psychological makeup how can TA be honestly applied to these situations anymore.

Algo's use past data to generate new trade ideas, but now that the market place has become competing algo's the patterns are going to me more random.

Does anyone agree that when volume is 80% done by computers it makes no sense to try and trade using psychology.

Look at this article:

http://www.tcs.com/SiteCollectionDocuments/White Papers/TCS_FS_algorithmictrading.pdf

 

[Shakone]

What do you think happens when an algo is rapidly losing lots of money and has open positions?

 

[new_trader]

Algo is such a cool word!

How are the algos today? Up or down?

Look at them algos go!

The market is crashing...must be the algos!

Lost money today, you can’t beat the algos!

Gee, the market is volatile today, it's the algos going crazy!

etc

 

[random12345]

Most of TA is based upon trading patterns and seeing the psychology of the market and trading with the big boys.

But if most trades are executed by computers who have no fear or greed, who have no psychological makeup how can TA be honestly applied to these situations anymore.

Algo's use past data to generate new trade ideas, but now that the market place has become competing algo's the patterns are going to me more random.

Does anyone agree that when volume is 80% done by computers it makes no sense to try and trade using psychology.

Look at this article:

http://www.tcs.com/SiteCollectionDocuments/White Papers/TCS_FS_algorithmictrading.pdf

Ranger, it really depends on what you mean by an 'algo' - there are some that are extremely complex and as reliant on hardware as they are on the software and trade thousands of times a day on a single instrument. They are not really reliant on 'historical patterns' as such. The oft maligned HFTs.

There are others that are still automated, but perhaps would not be labelled as algorithmic by retail traders since they do little more than trade swing hi/lows in a similar manner to what you would read on these forums. They also tend to accumulate positions and often hedge the firm bias automatically.

Then there are those in-between that often take traditional indicators or mutations thereof in various combinations/respects that usually 'hedge' only volatility and only really apply any sort of complexity to their exits.

Most institutions operate all methods at once, sometimes even under one hood, i.e. JP Morgan. Others have all sorts of separately developed legacy systems that they stitch together, usually by way of acquisition.

What I don't understand is why you think that the three basic camps of algos would prevent you using TA? If anything the longer term automated traders ARE trading relatively basic TA. The HFTs provide crazy amounts of liquidity and those in-between take all sorts of positions you might not take (again providing liquidity) since they are relatively simple in operation. I'm not sure they really 'add' much to the randomness that already comes with hundreds of thousands of participants having differing views at any one time.

 

[Babyblush]

Its a proven fact that the psychology of the traders have huge impact on the trading result and one can not neglect this aspect at all.

 

[PualoP]

What makes you think TA even works in the first place?

 

[NVP]

Algo's are just the manifestation of ideas / strategies created by traders.........

sure they are smarter and faster than the first calculators invented...........but dont get to hung up on them ....they are just part of the larger game

N

 

[BobbyBB]

One point to think hard about Algos is this.

If you never knew they existed would you recognise their existance when you're following and trading the market?

Most wouldn't, I trade FX where they're active (although not nearly as active as stocks) and I can't spot their work, it all looks like normal price action to me.

As for 'fear and greed' as another poster rightly points out, who controls their on/off button and do they suffer from fear and greed?

 

[numbertea]

Algo trading. What is it to you? To me it is just a computer pushing the okay button with less information, usually, than any profitable trader, only much much faster. I like that personally. It is a tool that is an extension of myself when I use it. It is part of my psychology, just not what you expected, maybe.

My version number: WPSG5-TTPY4-GHAS6-LKU66-ERDSW

(My lame attempt at humor)

Cheers