How the Algos Work

No math is needed. Math is good but it is not needed here. Formulas are complex but it takes very complex formulas to describe the simplest of ideas. Mostly algorithms correctly assume that no matter what, traders will rely on traditional trading dogma. One of those dogmas is to take a position when a trendline is broken Notice on the chart how a short term trendline on a major average was broken. In old world trading, which is still the standard, support has given way and a new down leg is beginning. Algos will encourage the breaking of a trendline just to draw in shorts to be squeezed. Any time a major average breaks a trendline, expect a short squeeze to follow.

Notice the major toping pattern on the chart. That is the goal line of the central banks, the algos, corporate buy backs, corporate insiders and all who work together to keep stock prices rising. If this goal line is broken, the running of this political agenda becomes much more difficult and success is less uncertain. Breaking this topping pattern to the downside is going to be fought with every tool available. Earnings statements will be fraudulent. Announcement of earnings will be timed for the maximum benefit to the market. Without a rising stock market all economic growth will will halt. A bear market is a death sentence to the overall economy. Take away the cause of profits and the profits disappear.

There are signs that among all who cooperate, the ranks have been broken but not enough to kill the political agenda. There is no faster way to make a profit than to control government and use government to force up the value of everything you own. There is no faster way to become a billionaire than to use government to force consumers to buy a product or service.

The algos prosper by understanding human nature and exploiting natural behavior. People are prone to trust. They trust government. That accounts for the acceptance of official explanations and is the one weakness that permits the algos to operate with impunity. Basically the algos understand standard trading behavior. As a way to exploit all others. They draw traders into logical trades and make those trade profitable to themselves. The math involved may be mind boggling but what the math is used for is completely simple.

When laws are only enforce if there is a political benefit, if you can imagine a certain crime is being committed, rest assured that it is.

The Swamp My Puppy Dog and I is a new Curbside Jimmy tune.

About Fantasy Free Economics

James Quillian is an independent scholar and economist.
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