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A comment on Behind the Market Swoon: The Herdlike Behavior of Computerized Trading. Parent comment

Re:Behind the Market Swoon: The Herdlike Behavior of Compute... by vasilipupkin on Wednesday December 26, 2018 @06:52PM (#18765953)
Actually, it works in the opposite direction. Here is why: if betting against the herd was the right thing to do, algos would learn this behavior and all algos would start betting against a big price down move. This is why algos actually reduce volatility, not increase it. And volatility is exacerbated by humans: trade wars, attacks on the fed and general erratic behavior of our president
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Re:Behind the Market Swoon: The Herdlike Behavior of Compute... by xapata on Wednesday December 26, 2018 @07:07PM (#18766032)
No, betting with the herd is the correct bet, except that one needs to place the bet before everyone else does.

Algorithmic, low latency trading reduces bid-ask spread under normal circumstances, but increases the risk of extreme events.

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Re:Behind the Market Swoon: The Herdlike Behavior of Compute... by vasilipupkin on Wednesday December 26, 2018 @07:14PM (#18766083)
We had plenty of algorithmic trading and years of very low volatility at the same time. If algorithmic trading increased risk of extreme events, it would have shown up during let’s say 2012-2017 years of low volatility. No, algorithmic trading actually reduces risk of extreme events such as fat fingers or extreme bets by humans. What drives volatility is macroeconomic environment.
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Re:Behind the Market Swoon: The Herdlike Behavior of Compute... by xapata on Wednesday December 26, 2018 @07:20PM (#18766120)
You don't remember any of the "flash" crashes? Turbulence has increased, regardless of the general trend.
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Re:Behind the Market Swoon: The Herdlike Behavior of Compute... by vasilipupkin on Wednesday December 26, 2018 @07:33PM (#18766184)
Flash crash of 2010 was extensively investigated and no evidence that algorithmic trading was at fault was found. After that, we had some of the lowest turubulence years on record, while algorithmic trading was going on, so your theory is not supported by evidence.
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Re:Behind the Market Swoon: The Herdlike Behavior of Compute... by xapata on Wednesday December 26, 2018 @09:28PM (#18766784)
There have been others. Plus there's some enjoyable literature if you're curious. Mark Buchanan has a nice blog and some links. The gist of it is that in the low latency space the ratio of players to possible strategies is too high.
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Re:Behind the Market Swoon: The Herdlike Behavior of Compute... by vasilipupkin on Wednesday December 26, 2018 @10:32PM (#18767045)
if yoi try to tie low latency or algorithmic strategies to volatility, you need to be able to explain multiple years of really low volatility despite all those strategies going on.
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Re:Behind the Market Swoon: The Herdlike Behavior of Compute... by xapata on Thursday December 27, 2018 @01:41AM (#18767872)
Low volatility according to what measure? I don't keep up with the literature anymore, since around 2010/2011, but it'd surprise me if we entered some new regime. Googling for "flash crash" turns up many more examples than just the one you mentioned from 2010.
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