Skip to main content

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. 

Related posts

1. Interview with Michael Bigger, trader and author

2. Mark Minervini interview: define and refine your approach.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li