“Greed and fear fought a tough battle in the New York Stock Exchange on Tuesday. At first, greed was winning as investors bought stocks after Monday’s price collapse, hence the share prices had risen 2 to 3 per cent by noon. Then fear took over the market – more sellers than buyers appeared and the indexes plummeted to negative”, stated the main article on the first page of Helsingin Sanomat, the largest newspaper in the Nordics, painting a picture of human reactions, greed and fear, dictating the current stock market ups and down. When in reality, the truth may be alltogether different – the human reactions, the individual traders, us share owners, we may just be riders on the waves.
Stock markets have always been used as indicators of current market situations, business cycles, recessions and booms – and rightly so, because the general indexes have given an overview on how companies are doing, based on how desirable their shares are. Although, it holds true today as well – in the long term – we have to be careful of not making assumptions based on the hourly or intraday ups and downs. Why? Because, it’s no longer about desirability of shares, or greed and fear for that matter, it is about computer algorithms.
Kevin Slavin gives a very interesting perspective to the stock exchange and algorithms ruling many things in today’s world. Even if you’re not familiar with the subject, or overly interested, you should watch it. Trust me.
The stock markets and computer algorithm driven exchange may very well be already too complicated for us to understand: secret algorithms reacting to other secret algorithms, which make the selling and purchasing decisions. Can it get out of hand? Is it possible that the human traders have lost control? Can automated trading based on other trader’s automated trading shatter the system? As mentioned on Kevin Slavin’s speech, a year ago on May 6ththe biggest one-day point decline, 9 per cent, on an intraday basis in Dow Jones Industrial Average history took place, only to recover in matter of minutes. And, nobody knows why. Greed? Fear? Algorithms?
I’m not trying to make any a bigger conclusions on algo trading. I’m trying to make a point, that we shouldn’t make first page headlines, market condition postulations, or conclusions on the state of the economy based on hourly or intraday ups and downs.
(I used to work at the FX & MM Trading, at Nordea Markets trading floor before becoming a researcher and later a digital marketing being.)