Jun
Trading Automated? Stock Market Software Advantages and Limitations
Everything run by human psychology is bound to be beset with complexities beyond idiom, especially when money is involved. It pains one to visualize the inner workings of something like the stock market, especially now that the world is besieged by global economic and financial recession. Many companies are struggling to be rid of the vise grip of the crisis that has already claimed many others, not just any companies, but known ones. With such influential organizations rising and falling, stock traders need all the help they can get trying to make sense of stock market figures that might some might even try their luck in automated trading via stock software.
Putting a computer’s excellent data gathering and analysis skills to use, market research software is one of the more useful things that had come out of the mesh of the World Wide Web that has today become commonplace. These software come in a variety of ranges: from observational systems designed to gather and organize data to analytic software that analyzes stock market information to actual AI traders that do the decision making as well. There are many uses to the data gathering and analysis parts of such software. But the decision making software is rather dubious.
It may be true that a computer is the best machine to analyze such twisted data as stock market figures and also best suited for performing the analysis based on a predefined principle or theorem like fundamental or technical analysis, but it is also true that the stock market can at times be beyond logic. One example of such an irrational instance is the stock market crash of 1987 where the Dow Jones Index dropped 22.6% for no probable reason. None logical, at least. Even if today’s computers had been there, they could not have been able to foretell such an event happening. This is still the case today. Even if trends do occur in Gaussian distribution, no computer can accurately pinpoint an outlier possibility and thus make use of it. Furthermore, the Efficient Market Hypothesis of Professor Eugene Fama effectively negates a computer’s potential to break the bank, or in this case, beat the market. Stating that it is not possible to consistently outperform the market from information from the market, though the hypothesis has its drawbacks and contenders, is sound enough to ring true for the case of a stock investing software.
Finally, there is the psychological aspect wherein a computer can’t predict human over or under reaction that can cause over or under pricing. All in all, with regards to data, computers and programs are excellent observers and analysts, but all calls are still best left to Homo sapiens.
