Software Robots Can Outperform People on the Stock Markets?
Posted by Sachin Garg on 20th August 2005 | Permanent Link
New Scientist is running an article on how software robots can outperform people on the stock markets, and they mention this as just the beginning.
Most data compression compression algorithms work on prediction based algorithms where they expect past behaviour to be repeated again in future. This makes them possibly applicable to predicting stock markets.
I am sure I am not the only one reminded of Jules Gilbert :-)
Some excerpts from the article:
With the computerisation of large financial exchanges such as the London Stock Exchange and NASDAQ, agents are now routinely used in financial markets, says Dave Cliff, director of Deutsche Bank’s Complex Risk Group in London. This is particularly the case with the equities market, in which companies buy and sell stocks and shares. The big strategic decisions are still made by human traders, such as which stock to buy or sell, Cliff says. But algorithmic trading systems, as the software robots operating in equities markets are called, have the power to decide exactly when to buy or sell shares.
Agents are already outperforming their human counterparts, he says. “They are pretty sophisticated. They are doing what a trader would like to do.” Agents are able to take in far more information than human traders. According to studies of human traders’ behaviour, people only look at three or four variables before making a decision. Bots can study hundreds, and refer back to a wealth of historical information on trading trends.
But while saving money on purchases is one thing, actually earning it is another. At the moment, one way to earn real cash is online poker. Online poker players strongly disapprove, but people are definitely using bots, says Jason Noble, who studies complexity and adaptive systems at the University of Leeds, UK. One, called Vex Bot, developed at the University of Alberta’s computer poker research group, is claimed to be good enough to take on poker masters. But Noble points out that such sophistication is not really necessary. The vast majority of people playing online poker don’t really know what they are doing. A bot wouldn’t have to be particularly clever to clean up.