01 Nov Man v. Robot
Man v. Robot
Nov. 1, 2013
Maybe you’ve been converted to using a Robot. Maybe you’re considering it. Or maybe you think that a Robot could never out-perform a human trader. Well, it’s time to break down this subject ESPN-style and see who comes out on top. Man v. Robot: Judgment Day!
To determine a winner, I will break it down category by category. Whoever wins the most categories wins the title. Here we go:
Man: A human is definitely at a disadvantage here. It is very easy to miss a trade by being at work, down the hall, or engrossed in the Oprah Channel. Furthermore, a human can press the wrong button or enter late or enter the wrong amount of shares. On the plus side, a human could be late to a trade and get a better entry, but you can’t count on this.
Robot: Sir, I never miss a trade. I do what I’m told when I’m told to do it without pride or prejudice. I never sleep and I am never distracted and I never watch Oprah. Sir, what is an Oprah?
Man: A human can adjust to the market. If a trade almost gets to the target and then news comes out, a human can exit that trade and lock in profit. Or a human can see momentum stalling and change plans on the fly. A human can also pass on a trade or add an extra trade based on the situation. But can a human make these decisions correctly every time?
Robot: It is not in my programming to adjust. I follow the rules, sir, until the rules are changed.
Big edge: Human
Man: A human can do all sorts of things to boost performance. A human can decide to take trades out, to stop after a hugely profitable day, and to stop after a bad losing streak. However, every one of those “performance boosting” decisions could actually turn out badly. Have you ever taken a trade out early only to have it hit your target or stopped early when you could have won more trades or stopped after a losing streak and missed several winning trades? All of these situations are very real possibilities.
Robot: For better or worse, sir, I trade the system. There is no chance of me missing a trade but I will not stop during a losing streak. And I will keep going during a winning streak. I do my job, sir, no matter what.
Slight edge: Robot
Man: A human can test manually and get an idea of what to expect from a system going forward. However, every “out-of-the-box” decision a human makes during that testing period makes the system not repeatable and less accurate. How can you test ten years of data and factor in the times you decided to stop trading and/or took trades out early? It’s not possible to quantify those in-the-moment human decisions, so the system’s performance going forward is always in doubt.
Robot: Sir, you know my figures for the last ten years. Of course past performance does not guarantee future results, but it can give you a good idea. If a man has worked 40 hours a week for the past ten years, would you bet that he will work 40 hours next week? If you had no data on the man, how would you come up with his total for the next week? Most importantly, sir, how much would you be willing to bet on your guess if you had no data?
Big Edge: Robot
Man: A human is well-equipped to deal with out-of-the-ordinary circumstances. A human can decide to not trade on a holiday. A human can decide not to trade during the NFP report. A human can decide to not trade during election week. Those all might be good things. But how does a human know if her decision added profit to the bottom line? Emotionally it feels good, but it may not be more profitable.
Robot: Sir, I have data on that. For example, the USDJPY is profitable overall on Fridays for the past ten years. If a human had decided not to trade on Fridays during the Non Farm Payroll Report, that human would have less money overall. That is a fact. The USDJPY is profitable when traded every Friday without exception. That’s just one example, sir.
So, adding up the rounds like a totally un-corrupt boxing judge, we have the following scores:
EXECUTION: 10-9 Robot
TRADE ADAPTABILITY: 10-8 Human (knockdown)
PERFORMANCE: 10-9 Robot
SYSTEM EXPECTATIONS: 10-8 Robot (knockdown)
SPECIAL SITUATIONS: 10-9 Robot
The winner, by a score of 48-45, and NEW heavyweight champion of the world…The Robot!
Thank you, sir. I shook up the world.
You don’t even know what that means.
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