With overwhelming speed and dynamism, financial markets of the twenty-first century are full of opportunities waiting to be extracted and utilized by a computer capable of observing all of them and identifying the most lucrative ones. However, the truth behind all those stories is much more complicated.
Technological progress is a fact; it has definitely changed the face of investing, although there is a belief that a “magic trading computer,” endowed with personality and outperforming the market, is just a figment of imagination. It is the market dynamics that are characterized with complexity and uncertainty with a variety of factors just like economic indicators, geopolitical events, and sentiments of investors shaping it up.
In addition to that, any trading strategy, irrespective of the computing capacity, is only as good as the quality of the data inputs and the expertise of the investor or the algorithmic trader. Trading systems or algorithms may be employed blindly without the awareness of the market nuances the risk of significant monetary losses can be very high.
Moreover, the idea of achieving “beating the market” is a topic of controversies, if not a tricky operation. There are some investment strategies that can give you short-term gains, but the long-term outperformance is really hard and can even be made impossible by experienced professionals.
But it that is meant is not that technology is of no use in investment decision making. Powerful computers are equipped with advanced analytical systems that speed up the processes of analysis which let market researchers to find trends in the market easier. Besides, algorithmic trading strategies can execute trades with precision and discipline and thereby minimize emotional biases.
Nevertheless a good computer is surely a useful tool for an investor, but the successful investment is not a case with this program. Prudence is enhanced when informed by thorough investigation, definition of risks, and strict execution. It remains the key of success. Instead of putting all the eggs in one basket, investors should concentrate on creating a balanced strategy which includes quantitative analysis and qualitative judgment.