Humans vs. algos: Mike Bellafiore on the future of trading

Mike Bellafiore of SMB Capital talks with MSN about humans vs. algos and the future of trading

A few notable quotes and points from Bella’s interview: 

1. Bella and his traders don’t look at the current environment as “man vs. machine“. 

Instead, they trade around the computers. Most of the advantage that “black box” programs or algorithms have are based on micro-scalping, trading for sub-penny moves. SMB Capital traders have changed their methods, extended their trading time frames, and are adapting to the current market structure.

2. Play your own game. As Mike says, “Do your own thing, let the computers do their thing. Don’t play that [computer’s] game. Play a game that trades on a longer time frame. Find the trades that work for you.”

3. On the large percentage of daily trading volume on US markets that is high-frequency trading (HFT) or machine-based: 

“We used to have market makers and they don’t exist anymore. The HFTs became the market makers, but they’re trying to make a penny or two cents. You’re not trying to do that as a retail investor, you’re trying to buy a stock because you have a thesis on it [holding for a directional trade or investment while managing your risk]”.

4. Finally, Bella acknowledges the coming wave of exchange consolidations and technologies that will open up new opportunities in electronic trading. 

Increased access to new, international markets will increase our opportunities as traders, since patterns and underlying psychology will repeat themselves in other markets. 

Additionally, traders will learn to create their own automated programs to take advantage of new market opportunities. The future of speculation will be one in which traders apply techniques in their home markets to equity markets abroad, while also reaching into new products and asset classes.

Enjoy the interview, and ask yourself how you might prepare for the changes and opportunities ahead in a “smaller, and more connected” trading world. 

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