Monday, August 10, 2009

Monday Morning

By the time you read this, Friday's decline will be history. The American markets moved up sharply, while the SGX Nifty is trading 100 points higher. All is well with the world. Paul Krugman, Economics noble prize winner, (often quoted in this blog) says that Obama's stimulus is working and the USA may be on the path to recovery.

What next for the markets? In India, we are faced with the prospects of an uncertain monsoon. Therefore, it is possible that the euphoria seen in the American markets (S&P is up 16% in one month) may remain absent in India. The 4700 - 4760 levels remains strong resistance.

The most reasonable scenario is for the Nifty to remain in some kind of a range It is too early to determine what the boundaries of the range will be.

Economic Times news on algorithmic trading

Well, computers are used to execute trades with lightning speed, mainly aribtrage. In the USA, the SEC is planning to restrain large brokerages from using high speed computers since this gives them an unfair advantage (the brokerages are also allowed few seconds of lead time when they can examine pending orders before the public). ALl this is done in the interests of providing liquidity to the markets. It certainly benefts the large proprietory trading brokerages.

There are two issues here.
First, the computers are best at arbitrage. The trader will not be able to compete with the machines in this area. But, the possibilities of arbitrage will come down as computers from different brokerages fight for the same trades. So the independent trader should not be concerned about this kind of computer trading. There will very little left to share, anyway.

Second, the best computers are still not a substitute for the human brain. So, practise your art. Traders will continue to survive and make money.

1 comment:

Sigamani said...

Sudharshan Ji,

I had read that article in economic times. But i didn't understand one point made in that article..

At one point, the editor had written that intra-day trading profits are rapidly thinning. I was thinking that with the growth in volumes the intra-day profit is also bound to grow.

1.) In futures market, every paise lost by a person becomes a profit for other person.

Going with this logic, the intra-day profit (or loss as well) should be expading rather than trimming. Can you help me to understand this better by throwing me some more light on the intra-day trading profits now a days when compared to the earlier days?

Thanks in advance.