Technology and Trading

[ewilcox]

I've been doing a lot of reading recently on using technology (ok the power of the PC to crunch numbers) to make trading decisions. Stuff like neural networks, genetic algorithms, fuzzy logic etc. Does anybody know if this stuff is being actively used anywhere? I've not come across it in the few city firms I've worked for but I guess its not your general "make a market, take the spread" deal. If yes - what sort of stuff are people actively using it for? If not - why not? They seem for some classifications of problems very useful.

E.

 

[TWI]

These technologies are being used extensively in systematic Hedge Funds and some of the IB's. I think this technology will become increasingly popular as it does without doubt provide an edge when implemented in the right way. Asd an example have a look at the performance of Medallion fund run by James Simon it has generated average 35% p.a. since 1988. He only employs math and science researchers and post docs, believe there are only 2 financial backgrounds in the company. Mr Simons is a retired Math Professor, a very, very rich one.

 

[ewilcox]

Interesting - thanks.

E.

 

[blackcab]

I don't know much about how widely they're used in banks but I've seen a lot of research on financial / time series forecasting using NNs, and NNs/GAs in general. There was a surge of academic papers published in the 90s, then it went quiet - presumably the research was being done at that time and now it's being put into practice. I see no reason why NNs can't produce trading decisions arbitrarily well as it's all pattern recognition; the problem is designing the topology and training them. Price on its own, or price+volume would seem a perfect application of NNs to me, and I'm dabbling myself.