Thursday, August 5, 2010

HFT and Odd Patterns

The Knife

If you like trying to puzzle out Elliott Wave patterns in trading charts, here's another puzzle for you to chew on:

Market Data Firm Spots the Tracks of Bizarre Robot Traders
by Alexis Madrigal, The Atlantic
Mysterious and possibly nefarious trading algorithms are operating every minute of every day in the nation's stock exchanges.

What they do doesn't show up in Google Finance, let alone in the pages of the Wall Street Journal. No one really knows how they operate or why. But over the past few weeks, Nanex, a data services firm has dragged some of the odder algorithm specimens into the light...

I don't have enough deep knowledge of High Frequency Trading and the algos that drive it to be positive these patterns are the result of bad actors, but I do know that pitting different computer programs against one another in a dynamic system can lead to interesting patterns, sometimes a cool form of stability and other times nothing more than crazy amplitude swings and a crash. I'm sure there will be more to come on algos in the future.

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