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I am a big fan of computer assisted trading and I thought I might
make a couple of comments on the recent thread on this subject.
Computers are fast, accurate and tireless calculators. Computers are
also simpletons in the sense that they don't "understand" (yet)
everyday spoken and written language.
This unique combination of characteristics offers an opportunity to
anyone who wants to test and improve his or her trading methods. To
explain to a computer how you trade can be a very difficult task. To
do this you have to write "software" which tells the simpleton
computer how to translate the market prices (or whatever it is you
look at) in some data base into actual trades.
If you (or a programmer you hire) can't do this then the odds are
high that "intuition" plays a major role in your trading methodology.
In my own case I find my intuition about markets misleading so often
that I refuse to trade on this basis and instead rely only on my
software based trading plan.
On the other hand I have to say that my trading methods are based on
my ideas, not the computer's. Computer software is not yet
very "creative" in the sense that we humans understand this term.
True, the technology of "software creativity" is advancing rapidly
(viz. all the work being done with neural nets etc.). But I would
argue that all this "creativity" so far consists of elaborate
searches through terrain which has already been mapped out by the
software developer.
Of course, the developer doesn't know what answer (a trading plan)
the software will come up with once it is let loose on the data. In
this sense the computer appears to be creative when it identifies a
potential profitable trading methodology, especially one which the
developer didn't anticipate. But what's really happening here is
that the computer is taking advantage of its unique ability to do
fast and accurate calculations. It is just exploring the universe of
possible statistical models which the human software developer
specified for it (sometimes only implicitly) in advance.
What the computer can't do is come up with a model that the developer
hasn't imagined yet. In other words it doesn't come up with "new
ideas" in the sense we typically use this phrase.
It is my own view that we may not be far away from a world in which
competing trading software is responsible for a good part of trading
activity. But markets are very competitive, so the winning programs
will always be those whose human creators provided them with
a "better idea" to chew on. Now the day may come when software comes
up with new ideas in the sense we use the term, but I think we are
still far away from that now.
Carl
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