Log in

beathespread

Trend or Range and beyond it: Market state analysis

Trend or Range and beyond it: Market state analysis

Market state analysis. Trend or range detection.

Navigation

Trading robots, are they bound by the law of the robotics?

Trading robots, are they bound by the law of the robotics?

Trading robots, are they bound by the law of the robotics?

Last updated 2941 days ago by JohnLast

image

As more and more tradign volume is carried by algorythmic trading we can ask if they do follow the three laws of the Robotics.

A robot may not injure a human being or, through inaction, allow a human being to come to harm.The Three Laws of Robotics ( shortened to The Three Laws or Three Laws) are a set of invented by  Isaac Asimov. The rules were introduced in his 1942 short story "Tunaround". The Three Laws are:

1. A robot must obey the orders given to it by human beings, except where such orders would conflict with the First Law.

2. A robot must obey the orders given to it by human beings, except where such orders would conflict with the First Law. 

3. A robot must protect its own existence as long as such protection does not conflict with the First or Second Laws.

Of course it does not make sense this in the algorythmic trading arena. However if we see the robots as a group they happen to have some upper lavel behavour as we human we have mass psychology. Robots have robot psychology. I will give again the same reference about the Rise of the machines:   Federal Reserve  Board. 
 
The empirical analysis provides several important insights. First, we find evidence that algorithmic trades tend to be correlated, suggesting that the algorithmic strategies used in the market are not as diverse as those used by non-algorithmic traders. 
If we humans we do act as nerds the robots are super nerds.
The joint report "portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral,"[10] and detailed how a large mutual fund firm selling an unusually large number of E-Mini S&P 500 contracts first exhausted available buyers, and then how high-frequency traders (HFT) started aggressively selling, accelerating the effect of the mutual fund's selling and contributing to the sharp price declines that day.

 source wikipedia

Algorythms were deeply involved in this process. Did their actions conflicted with the law of the robotics? And there is one more law of the robotics. The most important one.

  • 0. A robot may not harm humanity, or, by inaction, allow humanity to come to harm.

In our terms the robots may not harm the market. 

Here we have a shot about the flash crash in 2010. Algorythms were deeply involved in this process. Did their actions conflicted with the law of the robotics?
 
image
От 23 септември 2011
When one robot finds a solution the other robots simultaniously are able to find the same solution And imagine if that happens on a time level unachievable for the human perception? The human eye and its brain interface, the human  can process 10 to 12 separate images per second, perceiving them individually. The visual cortex holds onto one image for about one-fifteenth of a second, so if another image is received during that period an illusion of continuity is created, allowing a sequence of still images to give the impression of smooth motion. 
The high frequence
 
So in a blink of an eye a lot of things happen we are completely unaware. 
 
The idea in this metacognition technical analysis is that if the standard technical analysis have achieved a perfection in detecting mass psychology patterns today the trading arena is different. There are other players especially the algoryhmic traders that have a completely different behaviour that the human traders and investors.