There are two types of traders: The quick and the dead. Not only must you be mentally quick, but you also have to be able to execute very quickly. It’s not enough to just recognize opportunity, you must be able to act upon it. An idea, no matter how solid, without a solid plan for execution is nothing more than a dream.
I consider myself extremely lucky to have lived my dream of trading on the electronic exchanges during the years preceding the algo invasion. It was then when math-savvy point n click traders actually had a fighting chance of consistently profiting from inefficiencies in the market. Mental math was important, hand speed was important, coolness under pressure was important. But I don’t care how fast anyone’s brain does math, how fast their hands are, or how cool they are under pressure. There is simply no competition between man and machine. And furthermore, it’s not enough to just be able to do the math. You have to be able to tell the computer what to do; whether to buy or sell which product, and how many, at which price. And you can’t be looking everywhere constantly all at one time. While you’re looking away to execute an order, market conditions may have already changed, which would require an entirely new set of calculations for your already taxed brain.
Our proximity to where the market was being traded while we sat right next to the exchange was our competitive advantage back in those days. So if you are a point-and-click trader sitting in an office or even at home, you are already forfeiting the advantage of having proximity, as well as the advantage of having a computer to all of your calculations for you and execute for you. You are absolutely on the outside looking in. And to make matters worse, you are pitting your own reaction time against that of a supercomputer’s. I went online and took a reaction speed test here. It is simply a red screen that you click when it turns green. This process is repeated five times, with a random delays between the screen turning green. My score was about average, ¼ second or 250 ms. That’s simply clicking a mouse, vs pointing and clicking as you trade which takes substantially more time. By comparison, a simple execution algorithm that we teach in 101 can compare the quantity offered at the next price from your bid to your own comfortable quantity to lean on, and move your bid up to the next price, receive confirmation from the exchange that your price has moved, and repeat the process in less than a millisecond. For comparison it takes about 250 ms to blink your eye. So that means my algo can make 500 changes to my order in the time it takes for you to blink your eye, or click your mouse. You are essentially trying to roller skate your way through the Indy 500.
The trading game is very simple: Eat or be eaten. The algos are feasting, and that is not going to change. Join them at the table and stop placing yourself upon their plates. Just like everything else in the technology game, from computers to big screen TVs to video recording devices, the barriers to entry have been lowered to the point where “the rest of us” who don’t have a PhD and/or hundreds of thousands of dollars to spend on development can now participate. And not a moment too soon.