{"id":3680,"date":"2018-12-13T13:58:39","date_gmt":"2018-12-13T20:58:39","guid":{"rendered":"https:\/\/financegourmet.com\/blog\/?p=3680"},"modified":"2018-12-13T13:58:39","modified_gmt":"2018-12-13T20:58:39","slug":"wild-wall-streets-computer-trading","status":"publish","type":"post","link":"https:\/\/financegourmet.com\/blog\/investing\/wild-wall-streets-computer-trading\/","title":{"rendered":"Wild Wall Streets Computer Trading"},"content":{"rendered":"<p>In the past few days, the stock markets have whipsawed up and down by as much as 800 points, sometimes during the same day!<\/p>\n<p>It can be hard to put a finger on what is driving the stock market when the behavior seems so irrational, but the reality is actually pretty easy to understand. The computer programs have been tightened, and they keep firing off, sometimes together, sometimes opposed, and each movement they create triggers another program, which triggers another program, and so on.<\/p>\n<p><a href=\"https:\/\/financegourmet.com\/blog\/investing\/wild-wall-streets-computer-trading\/attachment\/computer-trading\/\" rel=\"attachment wp-att-3681\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-3681\" src=\"https:\/\/financegourmet.com\/blog\/wp-content\/uploads\/2018\/12\/computer-trading.jpg\" alt=\"computer trading market moves\" width=\"1280\" height=\"960\" title=\"\" srcset=\"https:\/\/financegourmet.com\/blog\/wp-content\/uploads\/2018\/12\/computer-trading.jpg 1280w, https:\/\/financegourmet.com\/blog\/wp-content\/uploads\/2018\/12\/computer-trading-300x225.jpg 300w, https:\/\/financegourmet.com\/blog\/wp-content\/uploads\/2018\/12\/computer-trading-768x576.jpg 768w, https:\/\/financegourmet.com\/blog\/wp-content\/uploads\/2018\/12\/computer-trading-550x413.jpg 550w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><\/a><\/p>\n<h3>Program Trading<\/h3>\n<p>Once upon a time, computer trading was nothing more that the pre-placed buy and sell orders entered by traders. A stop order to sell if the price dropped below a certain amount. A buy order if the price trended up. Those trades have been replaced by more sophisticated programs run by everyone from big Wall Street banks and brokers, to hedge funds, to so-called quant mutual funds. These programs fire off hundreds, or even thousands of orders in response to pre-defined market triggers.<\/p>\n<p><em>Is there a <a href=\"https:\/\/financegourmet.com\/blog\/deals\/is-credit-karma-a-scam-free-credit-score-offer\/\">Credit Karma scam<\/a>?<\/em><\/p>\n<p>Get the markets leaning too far, and they start kicking in, often triggering other programs in the process. The result is seemingly bizarre trading patterns, even within the same day.<\/p>\n<p>Here is an overly simplistic example:<\/p>\n<ul>\n<li>Trading firm #1 has a program that triggers if the Dow drops more than 200 points during the day.<\/li>\n<li>Trading firm #2 has a program that triggers if the Down drops more than 250 points during the day.<\/li>\n<\/ul>\n<p>Along the way, rapid &#8220;pre-running&#8221; trades are also triggered by computers in reaction to both real (person entered) and computer (programmed) trades.<\/p>\n<ul>\n<li>Trump blurting out strange stuff about tariffs and trade wars, along with Chinese statements that aren&#8217;t helpful, and someone decides to sell.<\/li>\n<li>A computer jumps in front of the sell order to front-run the trade and make a few pennies.<\/li>\n<li>In doing so, the price moves down twice, once executing the computer rapid trade, and then again exercising the actual trade. The ticker shows some downward trending, and a day-trader pops in to sell.<\/li>\n<li>Again, the order gets front-run, and the price drops a bit more.<\/li>\n<li>This process gets repeated, and along the way people decide things like If Apple is down, then Microsoft and Sony should be down, and I&#8217;ll sell those&#8230;<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>After a bit, all of this action and negative sentiment pushes the markets down. Day traders and momentum traders jump in and then the Dow is down 201 points.<\/li>\n<li>Trading program #1 kicks in. It sells broadly across the board, both as a way to stem losses, and a way to provide possible capital to buy back in lower.<\/li>\n<li>Trading program #1 isn&#8217;t the only program doing this. In fact, dozens or hundreds are. It doesn&#8217;t take long to push the Dow to 250&#8230;<\/li>\n<li>And trading program #2 kicks in.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>Eventually, a program (maybe even trading program #1) triggers base upon an overly large drop and begins buying with the intention of selling for a profit once the market comes to its senses.<\/li>\n<li>The Dow starts to rise and begins to trigger a different set of buying programs.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>When the Dow rises to near where it opened, the buying programs start slowing down. After all, the market may be way up from a low, but this is where it opened, so that price might be more &#8220;real.&#8221;<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>.<\/li>\n<li>Market closes up 50 points after <a href=\"https:\/\/www.cnn.com\/2018\/12\/06\/investing\/stock-market-today-dow-jones-huawei\/index.html\" rel=\"noopener\">falling 785 points during the trading day<\/a>.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>In the past few days, the stock markets have whipsawed up and down by as much as 800 points, sometimes during the same day! It can be hard to put a finger on what is driving the stock market when the behavior seems so irrational, but the reality is actually pretty easy to understand. The computer programs have been tightened, and they keep firing off, sometimes together, sometimes opposed, and each movement they create triggers another program, which triggers another program, and so on. Program Trading Once upon a time, computer trading was nothing more that the pre-placed buy and sell orders entered by traders. A stop order to sell if the price dropped below a certain amount. A buy order if the price trended up. Those trades have been replaced by more sophisticated programs run by everyone from big Wall Street banks and brokers, to hedge funds, to so-called quant mutual funds. These programs fire off hundreds, or even thousands of orders in response to pre-defined market triggers. Is there a Credit Karma scam? Get the markets leaning too far, and they start kicking in, often triggering other programs in the process. The result is seemingly bizarre trading patterns, &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Wild Wall Streets Computer Trading\" class=\"read-more button\" href=\"https:\/\/financegourmet.com\/blog\/investing\/wild-wall-streets-computer-trading\/#more-3680\" aria-label=\"Read more about Wild Wall Streets Computer Trading\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":3681,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[661,299,502,509],"class_list":["post-3680","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-investing","tag-investments","tag-stock-market","tag-stocks","no-featured-image-padding"],"_links":{"self":[{"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/posts\/3680","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/comments?post=3680"}],"version-history":[{"count":0,"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/posts\/3680\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/media\/3681"}],"wp:attachment":[{"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/media?parent=3680"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/categories?post=3680"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financegourmet.com\/blog\/wp-json\/wp\/v2\/tags?post=3680"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}