One end result: Successfully trading the stock market will become even tougher for most. And, we have to somehow assimilate that into our trading plans and figure out how we deal with that from a risk management standpoint. The rise of algorithmic trading programs has led traders away from past practices of running simple valuation-based scans for overvalued and undervalued stocks.
In the place of those seemingly primitive exercises are programs that scan real-time news feeds and trade stocks based on headlines.
As we have learned over the past ten years, those crowded trades could instantly unwind as the machines assess a single new headline. And of course, there are algos that trigger trades based on tweets from Twitter — as seen in via the volatile swings in stock prices.
Story continues In fact, JP Morgan Chase noted in a September study that the stock market declined slightly on days when Trump tweeted more than 35 times. On days when Trump tweeted fewer than 35 times, stocks often went up.
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Trading programs are only likely to get more sophisticated as computer processing power rises, and cloud capabilities strengthen. Meanwhile, the size of the global algorithmic trading market is expected to surge by a compound annual growth rate of Buckle up, traders.
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