Algorithms - Just the Tip of the Iceberg.


Market Volatility

The recent market volatility was caused by algorithms and not by any human thought processes. The algorithms allow non-stop selling in micro-seconds of tens of millions of shares in reaction to other algorithmic selling programs. 

Human participants in the markets know the appropriate risk/reward levels in many markets is way out of kilter. Algorithms designed for bull market conditions can never figure this out. Each day, the algorithms let the market melt-up or "shoot up".  No wonder passive investing is so easy with ETFs.

Market levels now look more dangerous than ever before.  Future unexpected algorithmic outcomes will likely occur again and again until one day market indices simply collapse uncontrollably.

Video link on Dow Jones 1,600 points drop  Various media coverage provided an unsatisfactory explanation for the drop and the subsequent market rally straight back up again.

I felt Jim Cramer of CNBC, came closest to a better explanation of What Just Happened?

Last Friday and particularly on Monday 5th Feb, we hit a shallow iceberg - a major algorithm hiccup. To underestimate the size of the next iceberg and its wealth-destroying effect to confidence may bring forward the recession we fear. 


On Wednesday 7th Feb, within a four day trading period, the Dow Jones experienced in one hour on no news, several hundred points swings in both directions. This is not human sentiment change but driven by algorithms.  Each algorithm can potentially have unknown knock-on effects on multiple assets classes and markets worldwide. 


                                                      Dow Jones Index Feb 7th

Unforeseen parabolic outcomes in market prices will happen. The longest extended bull run is simply an algorithmic illusion. 




Thought the ebb and flow of trending lower stock movements would take a few days at least. I'm blaming trading algorithms for speed of descent. 

As humans, we don't have a button to sell all stocks in one keystroke!

Good job!


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