Fast-Reading Computers Are About To Drink Your Trading Milkshake

Tyler Durden's picture

Add speed reading to the set of mad skills that rich robotic algos are now much better at than humans. The latest craze among the computerized trading community is using Johnny 5 to read through thousands of press releases in combination with some fuzzy logic and the 80/20 rule, to trade stocks pronto, even as plan vanilla Homo Sapiens are still stuck on footnote 1. The WSJ reports that: "Researchers have been working on an artificial-intelligence computer program designed to mimic the way an analyst uses financial news. In simulated trading, the program beat the S&P 500, and when combined with quantitative stock-picking techniques, it saw a return on trades of more than 20%." Unlike traditional number crunching methods to front run those armed with less than the latest SPARCs, this latest development will instead try to determine what the subtext of a given PR narrative is and trade it accordingly. It is unclear whether these programs are already in place, and whether they account for the almost universally wrong knee jerk reaction post any earnings and press release by public companies. We can't wait for corporate counterespionage divisions to reverse engineer these algos, and determine just what keywords and phrases set off Buy programs, and flood their press releases which announce 100% misses to expectations, yet result in flash dashes and inexplicably push stock prices up a few million percent. In other news, the market is now no longer about forecasting, predicting, and, generally, investing, but merely about being faster to frontrun/react/buy than your immediate competitor.

More from the WSJ:

To make stock predictions, the program does what is known as “text mining” — scanning large volumes of content and analyzing the words in it. Computer-aided quantitative funds already are plentiful, but they analyze numerical data rather than text. The new program is different because it attempts to simulate what has traditionally been a human activity.

“Our approach is more like the analyst approach, simulated by a program,” said Hsinchun Chen, director of the University of Arizona’s Artificial Intelligence Lab, in an interview with Digits. “You have an analyst reading papers, looking for clues that others have not observed.”

The program, which was first reported by MIT’s Technology Review, scans stock prices and financial news and buys or shorts stocks it believes will move more than 1% in the next 20 minutes. The system sells the stocks after 20 minutes.

“When you do long-term predictions, there are many variables,” Dr. Chen said. “But … you can have an advantage if you look at five minutes, 10 minutes.”

And before one says this is the dumbest thing in the world, here is the retort: the program's creator, fully aware that past performance is a guarantee of future results, note that based on backchecks Johnny 5 would already be richer than Jim Simons:

The system’s creators tested it using data from five weeks in the fall of 2005 — more than 9,000 news articles and 10 million stock quotes. During that test, the system, called AZFinText, had an 8.5% return on trades, beating the S&P 500 index as well as six of the top 10 quantitative funds. When the researchers used quantitative strategies to select a portfolio and then used AZFinText to decide which trades to make, they saw a return of more than 20%.

But that test period was selected for its lack of unusual market conditions, and Dr. Chen said the evidence is still early. He expects the system to be in use in the next two to five years.

Dr. Chen and Robert Schumaker, an AZFinText creator who has since become an assistant professor at Iona College in New York, also have been working on systems that analyze finance writers’ sentiment. The researchers also are expanding beyond Yahoo Finance and traditional news outlets to analyze blogs and investor and employee forums.

We hope these binary librarians learn to avoid the pages of Zero Hedge early on.

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TraderMark's picture

as you wrote - it would be fun if you were a press release writer to write the prose in a way that completely screwed these machines.


i.e. analyst expectation $0.65, company reports $0.42.


"We were very pleased with our results, BEATING previous year and almost breaking record levels of profits.  By almost we mean within 40%.  All in it it was a GREAT year and we are BULLISH about our prospects despite the little manner of litigation that might mean GREAT RESULTS for our competitors." 


Cursive's picture

LOL.  I would love to see this.  Out of work Wall Street analysts are a cagey bunch.

ZerOhead's picture

Out of work senators and congressmen would be even better!

I challenge anyone to find a flaw in this plan to 'democratically' overthrow the U.S. government. Seriously it will work!

Na na na na naaa... I'm smarter than you guys! You guys are so stupid! Blah blah blah blah blah blah...

Listen 2,000 hit's already and my boat is still floating... come on... sink me Bitchez!

CPL's picture

you's not a bad idea....muhahahhahahaha.


We would need anonymous' help to do it though.

wagefreedom's picture

"........try to determine what the subtext of a given PR narrative is and trade it accordingly." ha ha ha ha--you are good, man....

George the baby crusher's picture

Me too... I haven't laughed so hard since my dad fell off his bike.

Internet Tough Guy's picture

So we can help algos pick stocks? Blue horseshoe loves Bre-x minerals.

wagefreedom's picture

yeah, where do I submit my narrative? I can nar-rate with the best of 'em

Canucklehead's picture

Remember, helicopters and Bre-X don't mix...

CPL's picture

Just don't forget to write a suicide note on the way down that way it's legit.

wagefreedom's picture

let's see what they do with a sub-1110 narrative, assuming the ppt doesnt do something with it first...

mikla's picture

Not a surprise, but, "Oh, crap."

We thought it was bad when investment decisions were shifted to mere speculation based on short-term leveraged plays, as opposed to the "olden days" when investment firms actively sought to understand future growth and development plans within the company, deciding whether a company's stock (valued based on expected dividends) was worth the price.

Now, we've gone ALL the way to buying and selling a stock based on a HEADLINE.  You know, that cute grammatically incorrect phrase of a few colorfully chosen words constructed entirely for the purpose of grabbing attention, and often is actually opposite to what the article claims to state (in further bad grammar with poor spelling using industry-specific words incorrectly).

Heaven Help Us All.

CPL's picture

Wutlol!  The Elitez Mazzez of peeps are HARD on for the Mad Skillz uv de Citigroup (NYSE:C).  OMGWTFCOPTER!  LOL LOL!


Something like that?

Ragnarok's picture

We hope these binary librarians learn to avoid the pages of Zero Hedge early on.


Bahahaaha.  Great, now I'm going to start running into robots in the coin and gun stores.  Ammo is already expensive enough.


If there are any artists out there who draw political/financial cartoons, please draw one of a bunch of paranoid gold bug robots in a coin shop or gun store.

themosmitsos's picture

Skynet cannot become self-aware without a bullshit detector

firstdivision's picture

Hopefully the algos place greater weight behind Cramer's picks.

scratch_and_sniff's picture

How do we beat them, you ask? ...lead them to this baby and watch them melt.



StychoKiller's picture

Gad, I swear that some people use 50-cent words to masturbate to.

TooBearish's picture

Old game, new board - Cramer used the CNBS talkin heads to float a rumor on a stk that he had accumulated a position in, usually one that was heavily short by the HFs....o bother...

Cognitive Dissonance's picture

We can always hope the robots are as freindly as Walle and Eve.

mikla's picture

Eve will kill you.  On sight.

Wall*E is a likeable guy, and probably good to have over for dinner, but he seems to enjoy leaving muddy tracks on your carpet.

Cognitive Dissonance's picture

Eve has been deprogrammed by Walle and is now a lover, not a killer, unless you're messing with Walle. What's really scary is that I know this stuff. :>)

Part of our continuous movie and TV predictive programming is to humanize robots in order to make them likable to us cattle. Put a weapon on Johnny 5 or that troop carrier and paint a smile on the bullet proof cladding and we'll move along a little quicker when to. 

"Oh look, isn't that remotely controlled anatomically correct mass murderer cute as a bug. I'm sure it's harmless."

Marla And Me's picture

Boston Dynamics makes some scary robots.  Just youtube some of their more recent prototypes.  And what is it with the Japanese and robots?  They are an interesting bunch on so many levels.  What is it about their culture that they prefer the company of robots to the company of other human beings?  Insanity...

Boilermaker's picture

My money is on V.I.N. CENT from The Black Hole.  Sure, he's beat up and old but he can shoot like the dickens.  Plus, he's charming and loveable.  Awwww, getting cornholed by computers is so much more acceptable when it's cute.

What_Me_Worry's picture

Can we start a donation fund to put out "hypothetical" press releases on companies through sites like PRnewswire?  Would seem like money well spent.


Cyan Lite's picture

So we can now destroy the machines by putting out junk press releases... 

Dr. No's picture

I think we need guidance from JohnConner on this one.

seventree's picture

Junk press releases? Was the redundancy intentional?

Actually, the same guys that promise to push your website to the top of Google will get into this in a Wall Street second.

Amish Hacker's picture

That settles it. I'm opening a trading account with Evelyn Wood.

Gold...Bitches's picture

Double post... grrr

Gold...Bitches's picture

And people still try to say buying gold is a bad idea.  You'd rather have your 'money' in pieces of paper that Skynet determines the value of?

chet's picture

I"n other news, the market is now no longer about forecasting, predicting, and, generally, investing"

I can't believe that great swaths of our country have all their savings in this fucker. 

By the time this is done, the market will be completely dispised.  Arguably, that would be the time to buy, except that it will still be run by robots programmed to screw you over.  At the bottom of the market, you'll be the only human trade and at any sign of movement the algos will jump all over you like a pack of hyenas.  Whatever stock you pick will dive 15% the minute you buy it.

Ruth's picture

Did they forget how well those AI Automated Underwriting Systems worked?!  Can't we just jail these guys for criminal programming?!

Ya know what happens when they get caught don't ya?

Cognitive Dissonance's picture

You're an especially bad girl today Ruth. Bad girl!!

Now go to your room and no Internet for you for 24 hours. :>)

Ruth's picture

I just couldn't resist, can I now have my spanking?

optimator's picture

Didn't LTCM, Long Term Capital Management have a foolproof system too?

Haven't heard much about them anymore since they were bailed out a decade ago.

dark pools of soros's picture

frontrunnin the frontal lobes...


but the same thing has happened in news..  the AP puts out a story and then 4000 blogs/zines/papers print the same exact story.  There is just a handful of any analytic thought anywhere anymore so why trade that way?


but once we are all borg, how do you frontrun the collective?



CPL's picture

4chan Anonymous is how we do it.  We pick a target and flood the world with a total piece of horseshit.  Like nuking a unfortune 500 company.

AnAnonymous's picture

Of course, GAI is the solution. Always reported that traders are outdated. They are no longer needed. Lets make room for GAI and stuff will improve.

carbonmutant's picture

 You have no idea what's coming

And how close it really is...

Dr. No's picture

This makes perfect sense.  In an age where analyists are typically late to publishing news (i.e. downgrading of Greek after the fact along with countless other examples), this new re-org by the the algos will read the analyist publications and then trade accordingly.  This in effect will put the analyists back in front of the curve, making them look like heros when they "accuratly" "predict" the future events.

tip of the cap goldman!

lbrecken's picture

And that explains how the media manipulates the dopey traders.............

Joe Shmoe's picture

I, for one, applaud this.  There are lots of things that machines can do better, and this is and will be one of them.  Oh, and I thought Katherine Ross was much hotter as a Stepford wife.  

Think of all the time we'll save.  We can just deposit our chits at the beginning of our lives and then sit back and let the CAGR run.  Bring on the love!

lbrecken's picture

And why the market is up seemly based on nothing cause the media is trying to spin...and why it crashes all at once as the lies get exposed.....yes it explains alot.

lbrecken's picture

and oh i can jsut hear the bankers now when we start hearings on who was manuplating the markets and why and they blame it on the algo's...........

Margin Call's picture

Well the time horizon on profitable trading is going to have to get a whole lot shorter once these machines gain sentience and start nuking us.

gs_runsthiscountry's picture

Can this program read "greenspeak"? Compile all of Alan Greenspan's comments, verbiage and vernacular in front of congress in his 20 year tenure? If it can dissect and disseminate "green speak" you might have something.

"Backtest" that, why dont ya.



Bankster T Cubed's picture

hahahahahahahahahahaha!   morons

the whole premise upon which it is based is faulty

ufb how stupid some "investment pros" are

4shzl's picture

I have always believed that a random number generator is the most efficient price discovery mechanism of all.