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The illusion of algorithms, with Dave Floyd

Algorithm is a very common term these days, as well as being a very common tool in the trading world. However, the term does conjure up images of your computer doing all the work, while you simply reap the financial rewards. This is not accurate. 

There is little doubt that coding and computer power can dramatically reduce a trader’s workflow and allow them to generate analysis that would otherwise take hours, if not days, of mind-numbing grunt work. 

Think about it. If you had to do all that number crunching manually, you would have very little left in the tank for the creative part of trade selection and management.

Yet, contrary to what some believe, trading is as much an art as it is science. The art component requires uninterrupted time, analysing and watching price action. It takes time (and years of experience in my opinion) for the intuition to reveal itself. From there, successful trading can unfold.

“Yet, contrary to what some believe, trading is as much an art as it is science. The art component requires uninterrupted time, analysing and watching price action”

 

An additional thing to consider is this: The really big money and big brains actually create and deploy algorithms that can conduct trading with zero human intervention. Is this something available to the average trader? Sadly, no.

Most generic algorithms are merely deployed to automate trades, scan news headlines and some other pedestrian procedures. But they do not think and connect the dots in order to make, and effectively manage, a trade.

The reality is, a human being with lots of skill and experience is still needed to complete the successful trading process. An off-the-shelf algorithm or ‘expert advisor’ is really just an illusion. If they worked, the Paul Tudor Jones’ and George Soros’ of the world would be using them. 

“The reality is, a human being with lots of skill and experience is still needed to complete the successful trading process. An off-the-shelf algorithm or ‘expert advisor’ is really just an illusion”

 

About the author

Dave Floyd has two decades of experience and expertise in fundamental and technical analysis. He is the founder of Aspen Trading Group, a platform that provides FX research and analytics to institutional and retail clients globally.

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