Barncore@barnc0re
Ooh that's a tough question. And I don't think I'm qualified to answer it.
But I'll happily explore it as a thought experiment. Just don't take my word as gospel.
- I think hedge funds etc are already using the best AI tech available in their algos. How could they not? They're among the richest entities in the world, they have access to anything money can buy.
- First let's establish what the institutional entities need the algorithms to do: create liquidity and volatility. But they can't do it alone, they NEED retail making orders so that they can be on the other side of it. It takes two to tango. So with that in mind, whale algos must react to what retail is doing, by the very nature of their primary goal. So therefore, the swing factor here is RETAIL BEHAVIOUR moreso than algorithm quality, imo.
Something like 90% of retail traders lose money trading. And guess who's on the other side of it? Market makers. So that means they're gaining money against 90% of traders. It's easy money for them.
But what if AI is able to help retail trade better? To me that would move the needle moreso than whale improving their algo, cos the algos are already sophisticated, they just adapt to whatever retail's blind spots & weaknesses are.
Retail's blind spots are emotion-based and information-based.
AI fixes one of those things. AI can help retail become more emotionless and systematic, which improves their trading.
Can AI give an information-based edge for retail though? Hmm yes, but only info that's publicly available already. Everything that's googleable is avail on AI.
But how to discern which trading strategy information is worth paying attention to, and what's bullshit? The AI can't do that for people.
But I digress. Let's say hypothetically mass retail suddenly becomes more emotionless & systematic in their trading thanks to AI, and they improve because of this, cos they stop falling for the same traps... then it creates a new pattern ripple in the markets, so what happens? Institutional algos are able to adapt and find new blind spots.
They've been developing this tech for years (2010+?), I have no doubt they are programmed to adapt and evolve based on key data they have exclusive access to.
So when algos adjust, then that's when the whole market changes behaviour. And the key point here is: the adjustment happened indirectly because of retail evolving, not because of the algo getting so good.
We can make that logical leap because of what we know about market mechanics: at the end of the day it's all a function of supply & demand dynamics and that will never change (unless money becomes non-existent). So therefore it's always a continuous "game theory" playing out. The behaviours will change, but the underlying mechanics will stay the same.
And since the mechanics will stay the same, big orders will always have an imprint on price action. Whales will never be able to hide their footprints fully.
They may find new disguises, but only if the herd catches on to their current moustache & spectacles first. 🥸
And let's be honest, do we believe the herd will catch on..? Well, it's been decades and they haven't yet.
Why? Because there's paid charlatans everywhere misleading the public consciousness (and therefore AI data too).
So I think AI will only impact the market if the majority retail is able to improve, and that will depend on undoing decades of charlatan conditioning, and 1000s of years of emotional wiring.
So, you can decide how likely that is.
At the end of the day the name of the game is (from our perspective) reading institutional intentions and riding their waves with them.
The patterns may change, the pace may change, but there'll always be buying & selling.
So therefore you gotta learn the market from a first-principles perspective. What's the underlying logic/mechanics? Build your understanding from the ground up. Cos if the game changes then you have the foundational knowledge to adapt
