The future of automated trading
A new trend in automated trading is algo-snapping (the name is very conventional and is not established). These are algorithms or traders who do not try to predict market or crowd behaviour, find arbitrage, etc., but try to calculate the algorithm working in the market and cheat it - artificially create a situation that will force this algorithm to buy or sell, and profit from it. Exchanges have not yet agreed on whether such activity is legal or not.
This is approximately what was used about 5 years ago. At that time it was believed (there was a dependence) that the behaviour of EURUSD depended on oil futures. And there was a legend that big players performed operations on these futures in order to push the EUR in the right direction. The explanation was simple - it takes less money to move the oil market than it does to move the exchange rate.
It's banal market manipulation, it's an echo of the good old days when markets were still tied to real assets. Algo-snapping is not that, it is NOT trivial manipulation which targets computer programs exclusively. The goal of cutting literally a few cents is super scalping.
I see this as the next round of the development spiral. There were real investors that analysed fundamentals; investors became numerous and there appeared speculators that analysed behaviour of investors, not fundamentals, i.e. TA; speculators became numerous and computer algorithms that analyse behaviour of a rather amorphous crowd of speculators and make arbitrage on this noise appeared; computer trading became numerous and new level algorithms that analyse behaviour of first level algorithms and try to outwit them appeared. At each stage the new level tries to capitalise on the mistakes of the previous one, with each successive stage accompanied by a decrease in the rate of return. Whether this is good or bad, time will tell.
I recently attended a gathering of financial academics and quants from the world's leading investment companies. The man, who seems to know what he says, said that according to estimates, and no one knows the exact figures, because it is impossible to know, so it is estimated that today 50% of trades on the UK stock market and 70% of trades in the U.S. are done by automated systems. And the general trend is to increase this percentage.
And so in MICEX the proportion of automatic machines exceeds 70% of the total number of orders. I could not believe my eyes when I read that figure.
For those interested, I have attached a file on the subject.
...just a few cents is super scalping...
200 pips is super scalping?! I'm embarrassed to ask about the stops in your TS.
From 200 pips - super scalping?! I'm embarrassed to specify the stops in your TS.
So at the MICEX, too, of the total number of bids, the proportion of vending machines exceeds 70%. I could not believe my eyes when I read that figure.
...Так, уже разработан и успешно используется торговый робот, который способен совершать за один час до 4 000 операций купли и продажи
Y.Chebotarev Trading robots on the Russian stock market. С. 15. 2006 г.
This is all true of course, but what good is it to small speculators like you and me? And in general this way to nowhere, because the limit of downward price activity is known and it is conditioned by the size of commissions.
Also in one magazine I read an interview with some trader who trades on the Russian fund. He is a super-scalper and makes about 200 deals a day. Of course, this is not much by modern standards, but considering that he does it manually (!), it deserves respect. So, according to him, it's become quite difficult lately. He has a distinct feeling that his work is being monitored and they are trying to oppose him. Perhaps this is these mythical algo-snipping? Who knows? This is another striking example that you have to be crazy to hope to make money on tick noise while being a small speculator with standard trading conditions.
There are times when some brokerage companies reduce their commissions down to zero for a while as an advertising purpose (e.g. Forex Lovers Club). During these few months it is quite possible to use the lowest level pip collectors. It is a pity that this lafa does not last forever.
It's a pity the topicstarter doesn't deservedly single out algo-snapping and similar techniques as some new phase (it's a common feature of technicians). It even gives the impression that it is as if it is a more advanced technique or something. In themselves, these techniques are useless for small speculators, so it is meaningless to discuss them. But classical manipulation has already been scrapped and dubbed trivial:
Это банальное манипулирование рынком, это отголоски старого доброго времени, когда рынки ещё имели привязку к реальным ассетам.
And completely for nothing. Manipulation still exists and will always exist, as long as the free enterprise capitalism does not take over the world. It is manipulation of far more than a few points - the maximum that technicians can imagine. So far no such precedent has been set, and even the US government has had to take some measures that are far removed from the idyllic world of free capitalism. We live in a world of multinational corporations, a fact in itself that suggests they are capable of manipulating the market and doing so for their own purposes. In contrast to the objectives of scalper robots at a few pips, their goals are much broader - it is a control of a certain level of prices, it is certain actions aimed at making a profit or cutting costs in the future, based on knowledge of the present (or on the same trivial manipulation). Some of their actions can be tracked, but it is very difficult to do so. If we track them through specific data, we can see that their actions are very well veiled by fundamental effects. Through TA it is practically impossible to do this at all, as TA compresses information in a most irrevocable way. In general this is not a topic for technicians. There is no point in discussing it here.
Interesting situation:
On the manual trading forums, they say automatic trading is rubbish and few people use it.
And on forums where they trade automatically - they write that soon there will be no manual trading...
Everyone is pulling the blanket over his side, that's all.
In fact, most EAs are just partial human substitutes trading on principles laid down by the programmer.
And a small percentage of systems analyze the market and think by themselves what to do.
Even a praised neural network is like a little child that won't grow, but just learns to perform some actions partially.
It takes a lot of time to compose algorithms for network training, selection of input parameters, activation functions, normalization.
During this time, we can stack up a bunch of ordinary linear EAs and even merge them into one.
And let's not forget: One person's destiny doesn't always fit another person's destiny. There are people who trade manually, and there are people who are traded by experts.
It's an interesting situation:
On forums where manual trading is done - they write, automatic trading is rubbish and few people use it.
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I recently attended a gathering of financial academics and quants from the world's leading investment companies. The man, who seems to know what he says, said that according to estimates, and no one knows the exact figures, because it is impossible to know, so it is estimated that today 50% of trades on the UK stock market and 70% of trades in the U.S. are done by automated systems. And the general trend is to increase this percentage.
The new trend in automated trading is algo-snapping (the name is very provisional and is not settled). These are algorithms or traders that do not try to predict the market behavior or crowd, or find arbitrage, etc., but try to calculate the algorithm working in the market and cheat it - artificially create a situation that would force this algorithm to buy or sell, and profit from it. Exchanges have not yet agreed on whether such activity is legal or not.