Trading Automated? Stock Market Software Advantages and Limitations
Every brainchild of human thought seems to be inevitably fraught with complications, especially when money is mixed in. It pains one to visualize the inner workings of something like the stock market, especially now that the world is besieged by global economic and financial recession. Many companies are struggling to be rid of the vise grip of the crisis that has already claimed many others, not just any companies, but known ones. With such influential organizations rising and falling, stock traders need all the help they can get trying to make sense of stock market figures that might some might even try their luck in automated trading via day trading software.
Putting a computer’s excellent data gathering and analysis skills to use, stock market software is one of the more useful things that had come out of the mesh of the World Wide Web that has today become commonplace. These software come in a variety of ranges: from observational systems designed to gather and organize data to analytic software that analyzes stock market information to actual AI traders that do the decision making as well. The data observation and gathering plus the analysis parts make such stock trading software virtual assistants to stock traders and are quite accurate and useful. But the decision making software is rather dubious.
While it is true that a computer program is the best suited to analyze such figures as stock market data, and also quite suited to perform according to a predefined set of principles like using technical or fundamental analysis, the stock market—like any other man-made and man-run complexity, can at times be drastically irrational. The 1987 stock market crash for example; until now, no probable cause has ever been proven to cause a drop of 22. 6% in the Dow Jones Index. None logical, at least. Even if today’s computers had been there, they could not have been able to foretell such an event happening. This is still the case today. No computer can accurately forecast an outlier possibility in a Normal distribution of trends and in so doing take advantage of it. Furthermore, the Efficient Market Hypothesis of Professor Eugene Fama effectively negates a computer’s potential to break the bank, or in this case, beat the market. Stating that it is not possible to consistently outperform the market from information from the market, though the hypothesis has its drawbacks and contenders, is sound enough to ring true for the case of a investment management software.
And of course, a computer can’t account for the psychological aspect of the stock market where overreaction or the opposite can result in over or under pricing. All in all, with regards to data, computers and programs are excellent observers and analysts, but all calls are still best left to Homo sapiens.
