Jun

9

 Could the internet being changing the way markets trade?

It has been mentioned that the average attention span for adults is 15-20mins, and for the internet now less than a minute!

Could this have implications, as younger "playstation" brought up traders take hold?

I only had to look around at the grad next to me sitting on the desk in London, and watch him at the computer to know these boys were quick!

Could this have wider implications particularly in the normal ebs and flow of a normal trading day?

Alan Corwin writes:

Yes, the Internet is changing the way that traders trade. I think everyone realizes that it has, but if history is any guide, we will find out in the future that we had no idea how dramatic the changes have been or how diverse the fallout will be. Even Jules Verne underestimated change, and he was willing to go way out on a limb.

The one prediction that I feel comfortable making is that everything will happen faster. Certainly, that has been the story of the last twenty years, and the emergence of the Internet has accelerated that trend. I am often dazzled and frustrated by the speed at which markets move and change, but 2010-type trading would be mind-shredding to someone trained to think at the pace that the markets moved in the eighties. I can also remember being told in the eighties that the rate of change then was dramatically different than the rate of change ten and twenty years before.

I do think you have hit on one of the clues to the nature of those changes, i.e., attention span. I don't own the PlayStation kind of games myself because they would take over my life, but I have played several of them enough to realize that they all call for rapid execution of complex tasks, both mental and physical. There have always been activities that fostered these skills (most sports, for example), but the constant comparison against the standard of the machine imposes a different kind of discipline and fosters a different array of skills.

The young are built for change and speed because that is their competitive advantage. If we are competing with them as we are with young traders, we can only win by making the most out of experience. The sad news for those of us past middle age is that they will gain experience quicker and more effectively than we can improve our speed.

I have also noted one encouraging aspect of these games. The young devotees look to themselves for the causes of failure and success. I have never heard one of these kids say: "The machine got lucky" or "the machine cheated". It is accepted that they must look to themselves for the resources necessary to beat the machine. None think that the game is too hard or unfair. That's the way winners think. I like that.

Kim Zussman writes: 

By 1998 the internet was in use by >1% of the world, and has penetrated an increasing proportion of the population. Assuming web-based trading has paralleled this trend, here is an attempt to quantify stock market velocity as a function of internet availability.

DJIA 1928-present was used to calculate a proxy for "weekly velocity" = weekly range:

weekly range = (H-L) / {(H+L)/2}

The attached chart shows historical weekly range from 1928-present. Here is comparison of mean weekly range for the internet period (1998-present), and an equal number of weeks from the earliest part of the series (1928-41), when the internet was just a twinkle in Tipper Gore's mother eye:

t-Test: Two-Sample Assuming Unequal Variances

                   no net    internet
Mean           0.0452    0.0561
Variance       0.0006    0.0014
Observations    648    648
Hypothesized Mean Difference    0.0000
df                   1144.0000
t Stat           -6.2125
P(T<=t) one-tail    0.0000

Any Internet effect is overwhelmed by other market issues.

Craig Mee responds:

Thanks Kim and Alan,

When i wrote this, I was specially watching the dax trade and seeing a counter trend pullback, and thinking every market has a short term cycle. iI wonder if this cycle and any variance is directly related to attention span of its players. With Alan's comment "the sad news for those of us past middle age is that they will gain experience quicker and more effectively than we can improve our speed"….maybe we should then trade in a way that works for our personality and also is physical and mentally practical. 


Comments

Name

Email

Website

Speak your mind

1 Comment so far

  1. jeff watson on June 10, 2010 10:50 am

    Alan said, "I am often dazzled and frustrated by the speed at which markets move and change, but 2010-type trading would be mind-shredding to someone trained to think at the pace that the markets moved in the eighties". I spent the bulk of the 80's through the late 90's in the pit and found plenty of speed in trading.

Archives

Resources & Links

Search