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Wake-up pundits – ‘Algorithms’ set prices today (not supply/demand)!

September 13, 2013

Some 70% of trading volume is now the result of ‘algorithmic’ trading. Think about this fact and its impact upon our markets.  Practically every financial pundit on TV, Radio, and our main Media outlets seem to lack an understanding of today’s machine driven markets. I watch the Kudlow report almost every day and hundreds of pundits espouse their views on the markets and prices of stocks, commodities, and other financial products. Few (almost none) have talked about our machine driven trading markets and the algorithms which now dominate trading. We need to ‘wake-up’ and learn about our computer driven markets which now determine most ‘prices’ for our goods and services. Forget ‘supply/demand’ as the logic for ‘prices’ (especially within our gold and silver markets). The new strategy for determining ‘prices’ (within our virtual/cyberspace markets) is the ALGORITHM. Watch this video to obtain an overview of ‘algorithms’ and their impact on our markets. It may ‘wake’ you up to a new reality!

Today, traders who use the computer for their trading strategies (nearly everyone) are trading ‘price’ changes within their computer screen. Price is what traders watch and what traders focus upon. Traders could care less about a company’s historical earnings, quality of management, assets in/above the ground, or the value generated by the employees working for a company. The algorithmic programs which traders use to trade are only concerned with ‘price’ and only ‘price’ (objective numbers are what our computers process…not subjective items). Let me repeat this reality of trading again. Price changes create profits in the pockets of traders. Selling or buying a virtual stock, bond, commodity, or derivative is based on ‘price’ changes (objective numbers) from moment to moment in real-time trading. This video provides the mindset of most traders in today’s markets – WATCH and learn:

Traders like a volatile stock for trading as money can be booked as ‘price’ goes UP and then DOWN! Our machine driven markets require objective numbers for processing and execution of trading strategies!

Today’s traders use math and algorithms for most of their trading. Math and algorithms do not need any history about a companies earnings, management, or value considerations (such as assets in the ground or above the ground). What computers act upon are numbers and number trends. This means that ‘price’ is the focus for traders and for all their trading strategies. What a change this makes when one understands this reality of our machine driven markets. Traders can make money watching the ‘price’ of silver going down (via all their short strategies) and they can then make more money watching the ‘price’ go up via their long strategies. As a stock, etc. goes up and down a trader can program their computer to buy/sell via their built-in algorithm. Algorithms can act based on a math formulae (and trend instructions) without any input from the trader. All a computer desires is instructions for buying/selling based on ‘price’ changes and ‘price’ trends.

All the big boys now trade via algorithms and with HFT computers which operate in real-time! The historical system of open out-cry is now mostly obsolete. Electronic (machine driven) trading is ubiquitous!

Today traders can buy software which puts trading strategies on auto-pilot via math, formulae, and algorithms. All this is made possible because our money today is digital and imaginary. Who understands any of this? When I mention to my investor friends and students that our money units today are imaginary they usually walk away and don’t want to hear more. They recognize the reality of what I am stating, but they do not desire to understand this reality. Why? My sense is that most people desire information which requires no real deep thought on their part. They want to believe that imaginary money can work indefinitely and forever. Personally, I discern this mindset as part of human nature and one’s desire not to entertain any new problems which might involve deep thinking. At some point, however, everyone will need to think about this issue. When? Probably after a major market crash has occurred. I don’t think that many will desire to learn about money until then. That is my personal perception!

Enjoy and think deeply about this issue if you desire to grow and learn about today’s machine driven markets! I am:

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