5 Embracing Emotions

Emotions and Trading: A New Paradigm

In 2006 I had a very interesting meeting with a professor of finance in London, at a university where they were launching a new Master's degree in Financial Trading. We had a good discussion about the world of trading and he was very much a believer that the future of trading was automation – he saw a terminator-style rise of the machines occurring over the next few years. He told me that as a result of this trend in trading, the university's Master's programme was based entirely around automated trading and as an aside he also suggested that I might possibly like to consider a new career as, within the next few years, there would be very few human traders left for me to work with. His perspective was certainly indicative of the trend at the time – the rise of the machines – however, during the financial crisis of 2008, many banks turned off their automated trading systems (some of which had lost huge sums of money) and encouraged the “humans” to take over the reins. The human ability to adapt to changing and unfamiliar situations, to sense the markets, apply experience and make judgement calls in conditions of uncertainty was their advantage. Sensing and feeling the markets and making judgements are affective (feeling) skills, and ones which computers do not yet possess – although “affective programming”, giving trading black boxes emotions and feelings, is currently in development. So, interestingly, whilst many human ...

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