It’s lonely being a trader on the screen. At least in the pit we had someone to talk to when it got boring. But no matter what, one thing you always sort of jealously guarded was your information. You might be in there buying and no one could figure out why. Sometimes people would piggy back you and follow. Some might look at a chart and try to figure out a technical reason you were buying. In trading pits, sometimes traders that knew they were bell weathers would actually buy when they wanted to sell.
Those hed fakes could work great in a human pit, but the screen is unforgiving. Algorithms dominate.
They say that traders follow the thundering herd, and in many cases they do. In the pit, certain traders could be counted on to lead that herd. I have seen many a market stop and change direction in many different pits when one local stepped out and started either buying or selling in large quantities. In the Eurodollars during the 1998 LTCM meltdown, we traded in a relatively tight range compared to the 2008 melt down. I have to think if the 1998 market was run by machines the way it is today, things would have been a lot more volatile. With machines, it’s impossible to create a thundering herd. The market is just algos interacting. Markets race to a price, and then trade on the edges. Size on each bid and offer is thin.
How does social media interact with trading when it comes to good, actionable information? Not just a number released by the government at a specified time of day. The machines will beat you to the punch every time. Perhaps social media can create a counter balance to the machines? Perhaps if enough knowledgeable traders shared all their information, they could create a thundering herd that ran the machines over, rather than the other way around.
When you put social media, trading and all the evolution that has disrupted long time standards in the industry over the past 10 years together, one of the things that is interesting to ponder is information. As I said earlier, it used to be that you guarded your info. But today, no human is faster than the algorithm. You can’t be faster, or first to the market. The machine with it’s proximity to the server and built in advantages with less latency and all of that make your guarded information less valuable. Or, you assume a lot more risk by acting on it and waiting.
This whole Twitter/Stocktwits thing could be a centralized counter balance to that. If all active traders tweeted their information, and were transparent about what they were doing, might they get an edge on the machines? The machines are programs that don’t think. They are programmed to react. Pure hypothesis testing and Bayesian probability. The algos can be incorrect.
We have seen entire societies transformed by ideas transmitted on Twitter. It’s possible to coordinate quickly, and precisely. That’s not a lot different than trading in a wild market.
I want to know what you think of this idea. Let’s get a conversation started in the comments. No one has written the book on this, but it’s very interesting to ponder and interact with people that have exposure and experience with the industry. I want to be clear, I don’t think there is a right or wrong answer.