Is it really that complicated?

Algo’s, Robots and AI add to “Quant fever”

I was leafing through social media this week and came across one of those Three equals forty-five etc. puzzles that we all now know the answer to. It is an observation test not a test of mathematical ability.

I came across the reply below from, you’ve guessed it, a quantitative analyst, who was so proud of his answer that he was moved to show us how he reached is conclusion which was very amusingly wrong. When I asked him about whether he felt he was overthinking the problem, he told me, in about five hundred words, that in fact he wasn’t wrong and anyway the fact that he provided his calculations more than compensated.

15+15+15=45     [Since each design value is 15 = 6(hexa) + 5 (penta) + 4 (quad)]

4+ 4+15=23 [Since 4 bananas value is 4]

4+3+3=10    [Since each clock value is 3]

3+3+(3*11) =39   [Since 3 bananas value is 3, clock value remains same irrespective of time (i.e. 3), design value is 11 = 6(hexa) + 5 (penta)]

It struck a chord with me in relation to the FX market. Yes, of course the speed at which technology is advancing means that eventually traders won’t be able to keep up in a short-term market but a quote I heard recently also resonates. “I know where to look for information an algo needs to be told. How would a robot be able to figure out the effect of a 7.9 earthquake off Madagascar on the price of Brazilian coffee?  A bit convoluted but you get my point.

It is only complicated if we make it so

Very few independent traders are lucky enough to be able to trade as a full-time profession so why do we do it?

Personally, I trade to help me with my “day job”. I find that I retain levels in my head far better if I have some financial commitment. But there needs to be an emotional connection to be a good trader. That cannot be replicated yet by artificial intelligence, but I imagine one day it will.

As with any technological advance, it is easy to become a slave to it, rather than allow it to enhance the experience. As we become more ingrained in or own trading strategy and mentality, we should always question the what our “bots” suggest since we have access to the wider picture. At a forum I attended recently, I asked the question of a few traders “do you always put trades on when you get a signal without consideration”. I was amazed to find that more than 70% said they do. When challenged about market context the answer was generally “nothing matters except the technicals 100% of the cases I simply shrugged and moved on.

Since the mid-1600’s, when trading in shares first started the best mathematical minds have been trying (and failing) to be able to second guess mathematically the market and its participants mindset. Until traders relinquish a hold on the market and AI becomes an absolute reality able to, not only replicate but, improve upon the best trader’s mindset and methods, a three sixty-degree strategy will still prove to be the most effective.

Bitcoin rally brings usual overreaction

Bitcoin moved closer to the $8k handle this week and its fans were figuratively out on the street waving banners telling us it was “going to the moon. It is always difficult if not impossible to get a handle on the volume and value of trades going through that create this move.

There are four classic reasons for currency appreciation (or depreciation); technical, fundamental, supply and demand and sentimental.  Since the first two don’t really apply, it is the latter two that are behind the currency rally.

Bitcoin is still 44% lower on the year, and despite my feelings to the contrary on the markets ability to track it technically, remains in a downtrend.

It still seems that for every “going to the moon” voice there is another saying, “at this level it is about $8k overvalued”. That is supposed to be the beauty of a market that there are as many potential buyers as sellers, but it is being driven by those not prepared to put their money where their mouth is but encourage others to take on the risk while earning an introducing Brokers commission.