As unlikely as the French turning to McDonalds for sustenance: much has been made of the extreme levels of volatility in recent trading. As I warned in the past the push to remove the human element from the trading process was untested during a time of market breakdown or market crisis like 1987. Prior to the recent increased market volatility this past decade has been characterized most notably by a complete lack of volatility. I had reflected that in a crisis fully computerized systems may not be up to the task and run a greater risk of systematic break down.
Now it seems that one of the prime factors contributing to increased volatility is the removal of that very human element. Even with all its cost effectiveness it seems technology has exacerbated market volatility. The fact of the matter is that computers don’t think and technology is not a replacement for experience. Therefore they don’t have the “feel” necessary to assure orderly markets in a time of crisis. The “feel” as I describe it is the difference between Science and Art, mathematics and music. Traders for years have known that there is a zone between stimulus and response. Some have called it a nose for trading but it boils down to the ability to factor in an enormous amount variables under the watchful eye of wisdom, knowledge and experience. A machine simply can not take into account all the variables be they know or unknown to weigh the proportionate risk. “Black Boxes”, don’t think they respond and often in a “Black Swan” type event are left with little or no resources to accurately evaluate and act on the introduction of new variables.
I do a lot of investment seminars if you have any connections with organizations large or small that use public speakers and would be interested in some kind of a seminar on current market conditions and there long term implications contact me!!!
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