The Rise of the Machines. Wall Street 3.0
When I think of BOTs and Wall Street, one thing that immediately comes to mind is HFT - machines that trade on tremendous ever-growing volumes.
HFT has changed the industry, making a revolution, but one that only few get to enjoy. Several powerful organizations use the power of computing to automate trading and exploit opportunities, but most market players do not capitalize on the technology and the opportunities it offers for investing.
BOT’s technology is expanding everywhere.
With Facebook’s declaration of launching a BOT API for their messenger platform, with ViV launching their artificial intelligence platform,
and with Google’s recent announcement of releasing SyntaxNet, an open-source neural network framework as an open source,
A new race has begun by companies to develop their own chatBOT services.
Soon, we’ll be using Facebook messenger, WhatsApp, Telegram, WeChat, and others to do all sorts of daily mundane tasks.
Just imagine the following daily routine:
Morning: You ask your BOT “please provide 2 routes to walk the dog. Have them between 1–2 miles and pass by the lake.” Your BOT immediately provides you with 2 possibilities, using the courtesy of Google maps.
You would then ask your BOT to order a taxi for the airport at the cheapest service available to a flight, then you will also have your BOT order and pay in your behalf.
On your way to the airport, you ask your BOT “show me hotel rooms that are 4 stars rated within a 3-mile radius of my destination.” Your BOT quickly replies with several options, using Hotels.com or any other service.
You remember you forgot to turn off your home lights, so you ask your BOT to “turn off all lights at home; keep the porch light on at night” to keep away any burglar.
You’re going to be away for a week, so “tell my cleaning robot to stop cleaning every day and only clean today and the day before my trip ends.”
And before you forget, “ask the fridge if there’s any milk left; if not, please order one carton the day I return.” I got to have my coffee.
We get the picture. It’s like having a personal assistant that accommodates our every need, never sleeps, and never asks for a raise!
It looks like BOTs are coming, and they are here to stay.
But what has this got to do with Wall Street, you ask?
Well, imagine those same capabilities being applied in the financial industry.
Think of an investor or a trader, the ones who actively buy and sell financial assets every day. What makes a good trader, one who has gains over time?
All traders will agree 2 tools are needed in their belt to succeed over time:
- A plan
- Sticking to the plan
That’s it. That’s all you need to become a successful trader.
Why is it then, most people lose money when they actively trade the markets?
It is a tremendously difficult profession to master. The blame is on human psychology. Any plan a trader has is constructed out of the notion you cut your losses and let your profits run, having statistics on your side.
But what happens to most traders? Psychology kicks in with Fear and Greed.
Fear can make you not enter a position you originally planned to enter, messing with statistics.
Fear can also mess with your head. While you find yourself on a losing trade, the fear of accepting a loss often makes you ignore your exit point. You would rather wait for “the markets to come back your way” to find you lost all your money on one trade or have your money locked in a losing position for a long time, which means missing a lot of other opportunities.
“Greed is good”
— Gordon Gekko, Oliver Stone’s film “Wall Street”
Is it? I beg to disagree.
You’re making money, and that’s great. But everyone knows it isn’t yours, until you exit the trade. Greed sneaks in and makes you either cut your winnings short, just to put money in your pocket now or dream of the big win and ignore any targets you set beforehand, only to have you lose the trade when the market turns back.
As I went through the painstaking process of mastering my own shortcomings when learning to trade, I was always curious whether others, like me (the active traders), share the same problems. That is why, for years now, every time I meet a fellow trader, I always ask him/her what the most difficult part is for them, as traders? More often, the answer is “controlling my emotions.” Most of us agree, if we were robots, we would probably become very successful traders.
Human psychology is not the only problem for trading.
When a trader progresses with his trading skills, he takes on more trades per day; however, eventually, there is a limit for how much one trader can handle, which makes it difficult to test new ideas and grow even further.
Another problem, for trading, if you are not next to your trading station and with your finger on the button, you will miss a lot of opportunities.
But what if there was someone you could order to take on all of these tasks for you?
Now, imagine the following daily routine of a trader, having this BOT accommodating his every wish:
Early morning, you’re at home getting ready to start your day. You ask your BOT to “Tell me of all the stocks that have a premarket positive gap and are part of the S&P 500 index.” You now have a list of stocks to focus on, today.
You have an important meeting and don’t want to miss an opportunity, so “BOT, if the market opens .5% higher and AAPL opens below $90,
Buy 1,500 apple shares. Sell to cover if apple drops below $87
or trades above $92.”
You’re finally seated in your trading station, you have time to focus, but you decide to “outsource” some of your strategies. So BOT:
- “Buy $1,500 Citi and sell $1,500 JPM every day at 12:00 for the next 10 days if NYSE is below 10,000. Close when NYSE breaks above 10,500.”
- “After Motorola annual report release, if the price of Motorola jumps more than 3%, but less than 7%, and Motorola retraces 1% from the highest price traded after release, then buy 2000 shares.”
- “If China GDP prints more than 6.8%, buy $5,000 BHP Billiton shares.”
- “Buy 200 GOOG shares if the company releases a 10-Q and the earnings per share is higher than $6.5.”
You have to leave early today, so you ask your BOT to “Close positions 1, 2 & 4 five minutes before the markets closes.”
On your way back home, you remember you have some important positions open, and you want to be alerted if an action is required, so “Send me an SMS if any of my trades are losing more than 1.5% of my equity.”
This technology will not be a straightforward chatBOT, as he will have to manage a lot of ongoing tasks over long periods of time and track substantial data as he does all that.
The technology will be a marriage between a sophisticated human language BOT and a powerful platform behind the scenes to maintain all of these tasks.
For the user though, this is unimportant; it’s a BOT, just a financial one.
Imagine Wall Street, where anyone has n access to this financial BOT, one that listens to your every request and fulfills them without an itch, one that never sleeps. A BOT like that will eliminate any human bias and will allow for a methodical and surgical implementation of any trading strategy.
Giving this power to everyone will forever change Wall Street and will even the playfield (with some degree) between all market players.
Wouldn’t that be a revolution!?
I have Co-founded Capitali.se to provide this technology to everyone who would like to use it to improve their investment across all markets.
In a following series of articles, I will explore different investment strategies, learn to understand the concept behind them, and see how we can easily implement them on our investment portfolio, using Capitali.se natural language platform.
Capitali.se is the innovative and magical way that lets you use natural language to make your investment ideas come to life. Capitali.se simplifies the investment process by taking simple words and converting them into executable and optimized investments. We bridge between the simplicity of common words and the complex world of automated trading. Capitali.se delivers portfolio management automation based on written investment scenarios. With Capitali.se you can instantly optimize your investment ideas to analyze and improve investment performance.