How does algo trading affect manual traders?

Hi,
I apologize if similar question has been asked and answered before but I couldn't find any.

I am asking this question because
a) I am new to the field
b) I am learning manual trading from a professional trader and putting all my efforts to learn manual trading.
c) I am a pro programmer and do not know if I should look in to system development ( quantitative analysis) at the same time as many people intend to think it is the future.

Q1. Will computer based systems take over trading?

Q2. Will manual traders be able to trade the same way if that happened? For example, will all patterns, theories and indicators still work as they are made for markets as it is today which I was taught a reflection of HUMAN greed and fear?

I want to be a professional trader and slightly scared of what will happen in the future. Please shed some light to this matter. Probably this is a very stupid question and some of you might laugh out loud. But as I mentioned, I am still a little rabbit in this game so hope you guys understand.

Any (serious) respons is highly appreciated.

Well probably main effect is that markets move faster than before algo trading. So profits can disappear really quickly (well atleast if you try to trade like I have, which is short-medium term - may have to do with time decay getting priced in). However most algos probably stay same for quite a while, so it's possible that manual trader can adapt to the algos current games. I suspect trend volatility would be higher on average in more human driven trading - now you have those frequent short trends without pullbacks, from what I've heard those weren't as common back in the day and trends lasted longer.

If something affects contrarian profitability, it's probably internalization - there's some pretty wild claims that the market is running on central bank money - if that is the case then perhaps internalization does not affect profitability as there would be some form of QE going on somewhere all the time. What is the truth here - well it's probably both and also depends on your strategy. Internalization hides flow/liquidity so trading based on books and tape reading is probably different from what it was 10 years ago. IDK but that's what I've heard.



Google "How do HFTs screw small hidden limit orders posted inside the spread" for a bit of technical discussion, though that prob. depends on broker/market you trade.

Be careful Don't take forex as a profession because it is risky and very stressful. I recommend use the system that generate consistent profit. if your algo Makes money for you, use it. and only use it for making money. But if it is not working in long run I mean if your algo fail to generate consistent profit then manual trading is fine .

best of luck

FF should flag up sensible questions like this, they're rarer than francium.

No doubt the market has changed hugely over the past decade and computers have gradually but surely taken over a lot of the bread and butter trading of old. I went to a Bloomberg FX event, full of traders, and there wasn't one barrow boy amongst them - degrees in astrophysics, PHDs in applied maths, quantum engineering etc. I felt like a relative dunce.

A broker friend of mine has watched as half of his flow got computerised over the past few years, leaving him with the exotic and complicated scraps. Every time they see process engineers nosing around, they can see what's coming.

And to boot, it's a lot more sophisticated than ever before. Head over to nuclear phynance to get an idea where we're at. Or even this.... a bot reading, interpreting newswire lines (not tweets, that was just a headline), making $2.4m 1 second after information was released.
http://www.slate.com/articles/busine...a_fortune.html

So it would seem the bar gets higher and higher every year right? Ironically no. Noone will hand it to you, but the best advice is from Taleb. When he's not being a complete arse he occasionally scores a direct hit. You are basically now trading a market full of people who believe that if a coin lands heads 50 times in a row, the chance of it being heads again is still 50-50. It's not. It's almost certainly going to land heads again. This perception gap is the key.

Q1: For now, so long as the structure of the markets doesn't change, manual trading is safe and feasible. For how long though, I couldn't say - it is a very real risk, which is why I'd always say never go into trading for the money. Do it because you love it.

Q2: "will all patterns, theories and indicators still work "... most of them don't work in the first place. So no real danger

Hi Randika,
Define 'manual trading' please.
In the realm of speculation, its older than dust. Still, systematized trading has many strong points.
In arbitrage, yes. In speculation, no.
The game of speculation is the same today as it was a hundred years ago. I do not understand your question.
As well as self-interest, wisdom, intellect, ignorance, panic, confidence, euphoria, hysteria, hope and most of all uncertainty. Markets never change, because they are always changing.
Lucky for you, success is a result of directed effort. If you are determined to be a successful trader then success is probably just around the corner for you.

Regarding speculative trading, perhaps, yes: they're already doing so to a very significant extent, aren't they?

Sites like Investopedia and Wikipedia state factually (and I have absolutely no reason to doubt them), that about 80-85% of forex volumes nowadays are traded "speculatively" rather than "protectively", whereas a generation ago the proportions were clearly very much the other way round. The advent of computerised trading is what has changed and is still changing that, as well as all the other effects it's increasingly introducing to the markets.



Time will tell. Manual traders are already (very widely - though perhaps not necessarily entirely correctly?) claiming not.



In my opinion, indicators will still work the same way, i.e. not at all - they never really did anyway, for retail traders, most of the time (albeit that some members of this forum have a deep-seated emotional attachment to believing/hoping otherwise).

Regarding patterns, I don't know. Price action traders I know (nearly all institutional traders) who have been trading largely the same bar patterns for decades seem, collectively, to think that the advent of computerised trading has made them less reliable than they were. I don't yet have enough years' experience to have assessed this for myself.

Regarding theories, I'm not quite sure what you mean.



I'm not letting it put me off, having got this far.



On the contrary: these are highly relevant, significant and apposite concerns over increasingly significant issues. That's why they fill the trading-related media so much. I'm seeing articles discussing exactly what you're asking every week: you can't avoid them, can you? Understandably, of course.

On a (perhaps) more basic level, the boundaries between fundamental analysis and technical analysis are also becoming more blurred as a result of the ubiquity of high-frequency (automated) trading.

"May we live in interesting times"!

More food for thought on a related subject: http://www.etftrends.com/2014/04/div...ties-declines/

Classic comment.

Of course algo trading is affecting the market but not in a bad way. Just changes the dynamics a little bit. Markets move faster, react faster to new information and we see less trends and more noise(more mean reverting)........ BUT, the whole assumption that today it's harder to make money (beat the market) is absolute nonsense!

Markets have never been easier or more accessible than today. NEVER! Especially for the small guy. Now the volatility is great, the software is great, you get tons of free tools, all the information at your fingertips, spreads and commissions are the lowest on record....It's just so cheap to trade today (average spread on the majors under 0.5 pips, 1 pip's with commissions) ! Do you remember the 3 pips avg. spread on EURUSD and 4-5 pips on GBPUSD from 10 years ago?
There is a lot of great opportunities especially on the small time frames.

And when it comes to speculation a good trader will always outsmart even the most advanced algorithm. So, human traders are here to stay! Also, most of the algorithms do not execute directional strategies - they just provide liquidity and look for arbitrage opportunities. Smaller % are executing directional strategies and these algos are actually pretty "dumb"and their trading logic is based on very simple rules:

condition trend = a+b+c...
condition range = g+d+f.....
search for context...... => if context = trend => buy;.... if context= range =>fade the extremes. Things like that......
They look at statistical data, searching for stochastic drifts, standard deviations, range breakouts....thing like that, and of course NEWS.

A good dicretionary trader can always anticipate the actions of the algos and just ride the waves. Just because the algos are designed by some rocket scientists it doesn't mean that they are superior to human traders logic when it comes to decisions, creativity and adaptation. The algos are superior only in terms of speed. Nothing else. But manual traders aren't competing there anyway. Who holds positions for 1 sec. or less? Nobody...