Technical Analysis Fallacy
- #27,129
- Sep 11, 2011 11:44pm Sep 11, 2011 11:44pm
I think the quote & person is........
You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.
Abraham Lincoln
teb
- #27,131
- Edited 9:14am Sep 12, 2011 9:02am | Edited 9:14am
Markets with significant proportions of computer based high frequency traders are a recent phenomenon. One of the most novel aspects of their dynamics is that interactions take place at a pace where human intervention could not prevent them, and in that sense an important speed limit has been breached. Because of the speed advantages that computers can offer in comparison to humans, computer based trading is now almost obligatory. This gives rise to the potential for new system-wide phenomena and uncertainties. One key issue is that information asymmetries become more acute (and indeed different in nature) than in the past; and the primary source of liquidity provision has changed, to computer based and high-frequency trading systems, which has implications for the robustness of markets in times of stress.
Research thus far provides no direct evidence that high frequency computer based trading has increased volatility. But, in certain specific circumstances, self-reinforcing feedback loops within well-intentioned management and control processes can amplify internal risks and lead to undesired interactions and outcomes. These feedback loops can involve risk-management systems, and can be driven by changes in market volume or volatility, by market news, and by delays in distributing reference data. A second cause of market instability is social: normalisation of deviance, a process recognised as a major threat in the engineering of safety-critical systems such aeroplanes and spacecraft, can also affect the engineering of computer based trading systems.
Overall, liquidity has improved, transaction costs are lower, and market efficiency has not been harmed by computerised trading in regular market conditions.
The nature of market making has changed, shifting from designated providers to opportunistic traders. High frequency traders now provide the bulk of liquidity, but their use of limited capital combined with ultra-fast speed creates the potential for periodic illiquidity.
Computer –driven portfolio rebalancing and deterministic algorithms create predictability in order flows. This allows greater market efficiency, but also new forms of market manipulation.
Technological advances in extracting news will generate more demand for high frequency trading, while increased participation in this will limit its profitability.
SOURCE:
http://www.bis.gov.uk/assets/bispart...ancial-markets
Rgs,
Textor
PS: Do not say you did not know it...
Research thus far provides no direct evidence that high frequency computer based trading has increased volatility. But, in certain specific circumstances, self-reinforcing feedback loops within well-intentioned management and control processes can amplify internal risks and lead to undesired interactions and outcomes. These feedback loops can involve risk-management systems, and can be driven by changes in market volume or volatility, by market news, and by delays in distributing reference data. A second cause of market instability is social: normalisation of deviance, a process recognised as a major threat in the engineering of safety-critical systems such aeroplanes and spacecraft, can also affect the engineering of computer based trading systems.
Overall, liquidity has improved, transaction costs are lower, and market efficiency has not been harmed by computerised trading in regular market conditions.
The nature of market making has changed, shifting from designated providers to opportunistic traders. High frequency traders now provide the bulk of liquidity, but their use of limited capital combined with ultra-fast speed creates the potential for periodic illiquidity.
Computer –driven portfolio rebalancing and deterministic algorithms create predictability in order flows. This allows greater market efficiency, but also new forms of market manipulation.
Technological advances in extracting news will generate more demand for high frequency trading, while increased participation in this will limit its profitability.
SOURCE:
http://www.bis.gov.uk/assets/bispart...ancial-markets
Rgs,
Textor
PS: Do not say you did not know it...
- #27,135
- Sep 13, 2011 2:43am Sep 13, 2011 2:43am
- Joined Nov 2010 | Status: The bucking bronco and I. | 11,029 Posts
- #27,136
- Sep 13, 2011 2:53am Sep 13, 2011 2:53am
- Joined Nov 2010 | Status: The bucking bronco and I. | 11,029 Posts
- #27,137
- Sep 13, 2011 5:14am Sep 13, 2011 5:14am
- | Membership Revoked | Joined Aug 2011 | 2,325 Posts
"The Heart is the hub of all dances; go there and chill out"
- #27,139
- Sep 13, 2011 6:23am Sep 13, 2011 6:23am
- | Membership Revoked | Joined Aug 2011 | 2,325 Posts
"The Heart is the hub of all dances; go there and chill out"
- #27,140
- Sep 13, 2011 6:42am Sep 13, 2011 6:42am
- | Membership Revoked | Joined Aug 2011 | 2,325 Posts
"The Heart is the hub of all dances; go there and chill out"