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‘Algorithms’ have replaced ‘Open Outcry’!

December 22, 2012

Manipulation is now ubiquitous and Traders are part of this problem!

What has happened in recent years is a complete transformation of our free market economic system into a system of manipulation and corruption. This has happened subtly and gradually so that FEW can discern the change. Practically all our stock market exchanges are now electronic. Also our futures, options, commodity, and currency markets are now mostly electronic. ICE is now merging with NYSE Euronext to further the process of making all markets global and electronic. The traditional ‘open outcry’ system of establishing ‘values’ and ‘prices’ (where ‘human beings’ were paramount) is being replaced with high-speed computer trading (now mostly HFT trading via algorithms)…where ‘machines’ and ‘math’ are paramount.  This change is humongous and systemic for our now global economic system and for all monetary transactions.

Open Outcry system for setting ‘prices’ in the markets is mostly over and done as of 2012

Algorithms and HFT trading now represents some 70% of all Stock Market Volume
This change in how decisions are made means that ‘machines’ and ‘algorithms’ will now dominate and control the decision-making in all the global economic markets (stock, bonds, currencies, futures, options, and commodities). We now live in a NEW AGE of digital markets, Cyber-trading, Virtual currencies, Algorithmic manipulations, and a Casino mentality for establishing ‘prices’ and ‘values’. In these types of markets the KEY word for change (individually and collectively) is MANIPULATION. Our Central Banks and their policy-makers are now Manipulators (what is QE1, QE2, QE3, and now QE4). They manipulate interest rates, the distribution of currencies (Swaps, etc.), create distortions in prices and asset values (stocks, bonds, commodities, real estate), and destroy investor confidence in any long-term investing. This mentality and operational policy filters down to all traders and investors over time. Traders have now developed a NEW mindset as a result of these changes. What is this ‘new mindset’?
Some key Leaders of Monetary Manipulation which filters down to Traders
After attending a number of trading expo’s in the last few years, I have noticed that the MINDSET of successful Traders are basically as follows:
1. PRICE is all that counts when trading today. Think about following the changes in PRICE as you trade.
2. Company management is mostly meaningless when trading PRICES via the computer.
3. The VALUE of a company’s assets are mostly meaningless when trading PRICES via charts, trends, and up/down directions.
4. LONG TERM investing is mostly meaningless for most successful Traders as they trade in seconds, minutes, and liquidate all speculations prior to end of day or closing of the markets.
5. At the end of the day, all trading decisions must end with a total CASH position. The next day new positions are initiated.
The strategies of Trading, investing, and speculating have changed with the NEW electronic markets which have taken over the global markets (all successful traders are now learning these strategies and this mindset). All the markets are now mostly electronic, virtual, and within Cyberspace. To succeed as a Trader today, one must trade fast, furious, and with a plan that can be executed quickly, efficiently, and strategically. Algorithms are usually essential for executing any plan of action in today’s fast and furious trading markets. If a particular stock, commodity, or currency can be analyzed and traded with an algorithm this takes out any human judgment or mental mistakes. In fact, algorithms are mostly essential for all HFT trading today. The trading markets are trending towards an all electronic system (globally) where human judgment is being replaced with math and algorithms. This means that MANIPULATION of data and prices will be ubiquitous going forward. If the Central Banks can Manipulate, why not the Traders?
 All trading is now mostly electronic and this means quick, furious, and in CASH at end of day
Virtual currencies, Cyber-trading, and Algorithms are necessary given today’s global markets
 Conclusions:  we can not blame the Traders for changing the game of trading given that they must adapt to the new electronic markets (which they did not originate). All markets are now mostly Casino Markets in that trading, investing, speculating, and monetary policy operations are now done mostly to affect PRICES within these markets. All has become Subjective as the Big Boyz have changed the monetary game that is being played. Central Bankers now ‘manipulate’ the markets with their policies (QE)and other subjective actions. Traders manipulate the markets with their Algorithm strategies and executions (now some 70% of the volume in most markets). And our politicians manipulate the markets with their subjective, emotional, regulatory actions and decisions (monetary and fiscal). Basically, all the global markets today are being manipulated, controlled, and changed by forces OTHER than the free decisions of free people.
All starts at the TOP with our leaders and then filters down to the lower levels. If BLAME is due, then it needs to be addressed towards those at the TOP. That is my missive for today. I am:
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