This is a somewhat peculiar article where I talk about some algorithms have had problems during coronavirus.
The world of finance is huge and complex, it is not easy to understand the mechanics of operation, for many years we have heard about algorithms, artificial intelligence and all the technology that revolves around.
This fall/winter I will make specific articles to make you understand the world of high-frequency trading and how algorithms are developed to maximize earnings in financial markets.
Today I am interested to point out that in March 2020, in the middle of the pandemic, financial markets suffered a worse collapse than 1929. When I talk about artificial intelligence, many people think of a perfect mathematical science but in reality it is not so, it is true that more than 70% of financial transactions are made by robot-traders, but let’s not forget one important thing: who programs algorithms?
In a word humans, so perfect science does not exist, as there are no magic formulas, never as during the coronavirus I have seen so many “characters” sell miraculous masterclasses at crazy prices, as I have already said to those who follow me, there is no oscillator/indicator/magic algorithm.
Several funds with complex algorithms lost millions of dollars during the coronavirus, what happened?
Designing a system based only on statistical numbers is not enough, in the case of particular events such as Covid 19, a computer cannot easily predict how humans will react. Artificial intelligence is important from the point of view of analyzing company data (budget, future prospects etc…), in the search for sentiment data for example by scanning social networks.
Yes, social networks have read well, someone will be surprised but for institutional investors understanding the news coming from social networks (Facebook, Twitter) is crucial to optimize trading strategies.
A simple example, look at US President Donald Trump’s Twitter profile, every time he wrote a significant “tweet” markets reacted sharply to the upside or down.
I could give many examples where artificial intelligence is used, but I want to point out that in emergency cases (coronavirus), machines have had problems. A computer has no emotions, it is programmed to execute orders focusing on price and all parameters to which mathematical rules can be applied.
I know many traders who spend 8/10 hours a day optimizing computer systems, analyzing data because they no longer decide whether to buy or sell computers.
I like algorithms, I use them as other technical analysis tools, but in situations like coronavirus I had total control of the wallets without being influenced by computational choices.
Maybe in 20 or 30 years as in Arnold Schwarzenegger’s Terminator it will be robots that will replace people, but to this day remember that machines are programmed by humans.