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Robots run amok?

  #8 (permalink)

Salt Lake City, Utah
Trading Experience: Beginner
Platform: Jigsaw, NinjaTrader8
Favorite Futures: ZB
Posts: 477 since Apr 2016
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SMCJB View Post
Isn't that an argument that contradicts your title? If in normal times the Algo's keep the market in order, but when volatility picks up they pull back and the market goes nuts, isn't it the lack of the presence of the robots that hurts the markets?

The lack of liquidity hurts markets, and if all of that liquidity is provided by robots then yes their absence hurts markets. However, you have to consider why they were turned off in the first place. They started screwing up so they got shut down. And yes they do turn the market making robots off sometimes. I have first hand knowledge of that from working on systems that detected out of control algo's and cut them off.

Do you think the robots have record short positions or is it PMs and Quants?
I'm not saying that I think your wrong, just that you gave two characteristics that I think oppose what you were claiming.

I believe the sequence of events went something like this.
  1. Quants and longer term models say if treasury yields go up too much it's a problem.
  2. Treasury yields move up because Federal Reserve communicated future policy clearly, and signs of rising inflation appeared.
  3. Larger institutions try to reallocate their funds in a panic.
  4. Moves cause liquidity providers to turn their scalping liquidity providing robots off.
  5. Flash crash and volatility the rest of the week ensues.

And then you have today. What happened today? The treasuries had a trend down day and completely blew through their lows from last week. Yields moved up. Many levels that equities were worried about treasuries hitting were breached....and equities went up!

So now all of the sudden the market no longer cares about all of the things that it was panicking about last week. So we have two conflicting moves. I say that the one that pushed equities up today is the rational one, and all the strategies dumping stocks last week because of rising interest rates are on the wrong side of the trade.

So think of it this way. Automated trading and quant based strategies are a trade. Right now that trade is crowded, and last week's market action was the result. My theory is that if wall street wasn't so invested in this algo trade that the action last week wouldn't have been so volatile.

Last edited by TWDsje; February 14th, 2018 at 05:37 PM.
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