Interesting.

Interesting.

Electronic, robotic, automated, or algorithmic trading all have an adverse effect on the market. I think their speed adds volatility and uncertainty causing others to withdraw from the market. As they leave the market moves downward with the loss of participation.

@ William

Please elaborate as I seem to be missing something.

Electronic trading has put world markets within reach of the private investor/speculator and adds to liquidity. Surely, you do not want to return to open outcry pitts, do you ?

Automated trading (not HFT) is simply the techical execution of trading views (be it fundamental, robotic, ...) and does not have an adverse effect on the market. Why should it

So, if you are referring to HFT, I share your view, else, I seem to be missing your point.

Marc - I love being able to place my trades via the internet - but that is not what I was eluding to. When I place a trade a human has made the decision at a humans pace. What I was talking about is any program on a computer that makes trades without human interaction. They have adverse effects on the volatility of the market and on the desire of the human investor to stay in the market.

@William

"any program on a computer that makes trades without human interaction. They have adverse effects on the volatility"

How and why ? A computer executing in an automated way, a strategy devised by humans has no more influence on the market than that same human being glued to his screen for 24/5.

"and on the desire of the human investor to stay in the market." . That is your sentiment and it is impossible to measure, let alone to really make this 'a fact'. So, I find this remark rather 'out of place' since this group is all about algorithmic trading.

Marc, we agree on the fact a computer programmed to trade based on certain events happening can react to a given event much quicker than a human so they increase the volatility of the market.

In my opinion this increased volatility also causes the human trader to take more time to figure out what is going on. Even more time spent gets them into the market much later. The result is there is more effort and less profit on the table for the human so they are leaving the market. I know there are no statistics on this but I think that the decline in the DOW since May 2015 might be caused by their funds exiting. Another fact is - as a member of another group of traders I have personal experience with our group losing members because of this fact. I joined this group in hopes I could benefit from this form of trading instead of struggling as I had been.

William Stocki I think you're overlooking several things (like the rise in the popularity of ETFs, the most recent financial crisis, the number of human traders (and the fact that their timing varies) . . . and even the timing of high latency low frequency trading systems. Did you consider human traders that use automated stops? There is a lot of misinformation about automated trading on the Internet. Typically, it's written by those who have never programmed or run a fully automated trading system.

4. Which causes more volatility?

A. The speed of execution

B. The size of the transaction

5. Which causes more volatility?

A. An automated system buying 100 shares of MSFT with a limit order

B. A human trader buying 100 shares of MSFT with a market order

C. Neither

6. Which causes more volatility?

A. An automated system trading a high volume ETF

B. A human trading a low volume penny stock

Exactly how does speed alone affect the price?

Drew Brown show me one person can mage 200 orders in the same time ? ..ant tell me something about HFT .. if can compare with any other system (6000 orders / min)

@ william

I just want to put an end to this volatility issue where you state as "a fact" that automated systems cause much higher vol.

If you compare ONE robot to ONE human trader, both with the same trade, clearly you have to admit that you are wrong.

Comparing ONE human trader to a series of robots is incorrect. You would need to compare the behaviour of ALL human traders with the same trading intentions to the robots and then I still stand by my original post where there is no reason to see higher vol.

However, I DO agree that HFT's can cause (and indeed have caused) vol spikes and market disruptions. The whole HFT-issue has been discussed several times already in the past in this and other groups.

So, it would be better to distinguish between HFT and automated trading.

regards

http://www.businessinsider.com/virtu-hft-only-one-losing-day-2014-3

http://www.marketwatch.com/story/this-man-wants-to-upend-the-world-of-high-frequency-trading-2016-02-02

its a total non-discussion, clearly automated trading causes more vol here

@william

"Marc what is the difference between HFT and automated trading? I want to know your thoughts - because I see none!"

I run automated trading models. They run on time frames (from 5 minute to daily) and produce a limited number of trades. My core business is FX which is a 24/5 market, so automated execution is a must.

HFT is automated trading, but not all automated trading is HFT. I am sorry you fail to see the difference.

As to the volatility issue : Before the internet, before affordable execution platforms became available to the masses, liquidity was lower and vol MUCH higher in the FX world. I have been in interbank FX since 1985 and at that time, daily market moves in USDDEM of 2 percent were common. Nowadays, if the market moves 1 %, it is headline news.

@andrew Innes

"its a total non-discussion, clearly automated trading causes more vol here"

Clearly, that is a very scientific observation, ending all discussions.

Marc thanks for providing your difference between automated trading and HFT for me. I now have another question - do all systems operate as yours does?

I ask because others that I have had discussions with say they use automated trading to make as many trades in a day as they can! They also refer to themselves as HFT! That is where I got the definition that they are the same. So now I'm totally confused.

As for volatility - I have to agree with the 1% movements in the market as well. But when one looks at the 5 or 10 minute charts one can quickly see that it is also up and down in day long upward or down ward value trends. The chart looks like a saw blade. Which to most is extreme volatility. Only automated trading or HFT can make any money when values move this way. Especially if one uses a TSL.

Like Marc was saying there are a variety of automated trading systems. It helps to know the difference. Moreover, it helps to remember that there were bubbles and crashes in the markets before automated trading became popular. I think some people in this thread are also overlooking the impact of ETFs (i.e. their trending popularity and how that impacts the price action of the assets they include). The depth of knowledge by some in this thread SEEMS to be limited to CNBC's coverage of Flash Boys.

Generally speaking, all attributes being equal, all filled trades have the same impact on the market regardless of latency or whether a machine or human places the order. Other factors like the size of the transaction, the sequence of transactions, and the volume at the time of the trade, and the order type matter more.

Unlike what William is putting forth speed (i.e. latency) in and of itself does not increase volatility. Perhaps he is conflating frequency and speed of execution. By his logic, humans who trade ETFs are using automated HFT (and therefore increase volatility somehow). It really helps to know how orders are filled and how the automated systems that facilitate trading work.

All of that should be considered before taking into account that there are automated trading systems taking the opposite side of the trade against other automated trading systems . . . !

@ william

"I now have another question - do all systems operate as yours does?"

I certainly hope not !! otherwise, our offer would not be unique.

We are running fully automated models, without any human intervention, from datacollection to trade execution. there is more in life than being glued to a PC.

I would like to repeat, I am not a fan of HFT, especially the cheating kind where they jump the line and profit from client orders. But that discussion has already been done not too long ago.

Also, there are HFT's that are not parasites and add liquidity to the market (e.g. being best offer and/or bid) and try to make pennies on many trades. If these are wrongfooted on a sudden move, then of course they will bail-out and/or reverse positions which causes more volatiltiy. There is no denying that (as i have stated in earlier posts) but that too is part of the market as they too have to protect their capitalbase.

Marc - I thought of one more thing during my last comment on volatility but ran out of space. A lot of HFT is done to control the value with large amounts of capital, in XXX stock, over very short time spans, and in numerous small lots. This puts signals into the market that other HFT systems and manual traders read - so they join the movement. The price moves in the direction wanted for a small gain and then the starting HFT reverses it's actions causing new signals that take the value in the other direction. A 1% profit on a large amount of capital numerous times a day in the same stock adds up to volatility, taking huge profits out of the market and killing opportunities for the normal investor.

William,

I will not argue that HFT practice. It is a legitimate practice where the strong hand mostly wins.

Looking at volatility on a longer time frame (hourly, daily), these practises have little impact since they "control" the market in a small range. But at times, they end up on the wrong side of the market, carrying a huge position and getting wiped out. I think they are referred to as "Shift 'f9' monkeys" (where a bank with this strategy pushes "shift" to see the result of that day's unsupervised HFT trading to find out they had lost all the banks capital base)

We never trade on "tick"data, rather on timeframes (e.g. hourly) and are not bothered by the noise caused by these HFT strategies. So, my humble advice is : if these HFT's take your money, do not engage in that fight and apply a strategy where their influence is less. (feel free to pm)

Because I still trade manually - I operate on the 2 or 10 minute charts but still take to long to make a decision because I use seven different buy signal providers.

"I use seven different buy signal providers"

Aahh, analysis paralysis

An automated systems takes away that burden my friend :-)

Agreed but a win loss ratio that is very sweet!

Indeed William.

To me, the essence of automated trading is that the mental test of "pulling the trigger" (taking the position) is taken away from the human and transfered to the machine. Knowing that your strategy has only a 40 or 45 % winning trades, one might be tempted to second guess each trading signal to avoid a loss. Automated trading takes all of these trades and at the end of the day (week.month.year) you have a nice profit to show for.

Obviously, autotrading can cover many assets at the same time while a human is still just a human, prone to fatigue, frustration (because robots acted faster), doubts, ...

But at the end of the day, all of the strategies combined (human + machine) make the market !

kind regards

Marc - did you mean that your system has a record of 40 or 45% winning trades?

That's less then 1 of every 2 trades. Guessing is usually 50/50! My present seven buy signal system has a win loss record of just over 5 wins to 1 loss. Or 83.3% wins - that is double your automated system. I'm beginning to think I will stick with what I know!

@ William

1. if you have an 83 % win ratio, why all this rant against automated trading ? (Maybe your signal providers are partly automated. That would be funny).

Oh, by the way, our S&P model shows a 92 % win. You can not compare asset classes

2. I mean that if you have an automated system with 40 - 45 % winning trades (and obviously a nice return at the end of the year), you best automate it to avoid second guessing /having a discretionary overlay.

When it comes to systematic trading (=rules based), be it automated or not, discipline is the key. Sticking to the rules, even during a period of underperformance. Automating the whole thing is the best way to achieving that.

kind regards

Marc discussion on your 1st comment question - my 5 to 1 win loss ratio was calculated based on my activity. But because of the high volatility my activity has been CASH since January 2016. I had to find the reason why my Buy Signals have been inactive and my account sits in cash. The only answer I could find was high volatility - and the only reasons I could see were bad economy, HFT, robotic trading, automated trading or what ever else we can call it. How could my signal provider - I assume you mean CHARTS PROVIDER as I use nothing else - effect my performance by being automated?

@william

If you are only looking at "BUY" signals, then in a falling market, you may have found your answer (and being cash was a good strategy !!).

If you do not get signals, you can not profit from automated execution as this is non-existent. So, the problem is not that you can not get good fills due to robots, the problem is you do not get any signals anymore. As robots were around prior to January 2016 when you still got signals, why would they be the culprit now ? Please help me understand (eager to learn)

@william

PS maybe we should take this private as no one else is joining this discussion

One last question Marc - have you had any profitable positions since January 2016? Remember I hadn't! Yet the DOW started going down ward on May 19, 2015 - so I don't think the market influenced my inability - it has been volatility not leaving enough room to take a profit for a manual trading system!

@william

we do not use charts to generate signals (as chart points are too obvious to spot and open to false breaks created by powerhouses). Besides we work both sides of the market (long and short) so as long as there is enough price movement, we can be in the game.

"it has been volatility not leaving enough room to take a profit for a manual trading system!"

The take profit part of a trade comes after the opening of a position. So, how does that affect your buy signal. Is a buy signal only given if a certain predefined risk/reward is met ?

To me the "...take profit part of a trade..." must be understood once some of the Buy Signals are seen. My motto is 'PLAN THE TRADE AND TRADE THE PLAN!" So I have to have not only an entry price but a target price and an exit price! So without a target price all the Buy Signals are not in place. That is where the volatility comes into perspective! I like nice big profits and very small losses!