Harvard Business Review published an article called “Beyond Automation” (click on the link to read it in its entirety) back in June 2015. In the article, it talks about the Three Eras of Automation. During the 1st Era back in the 19th century, machines replaces manual labor in farms, industrial factories, etc. In the 2nd Era during 20th century (which has already past), machines makes your daily jobs and tasks easier with computer programs, automated call centers, airline kiosks, etc. This is what we are familiar with, though we also try to teach our parents and grandparents how to participate in the 2nd era of automation by showing them how to use computers, smartphones, payment kiosks etc.
Now, enter the 3rd Era of Automation, which has already started and taking place right now. Machines are replacing decision-making. We can see this happening on a large-scale with Amazon’s smart pricing system, where algorithms set the price of items which you are viewing according to your buying habits and other metrics. Other online stores also emails you customized coupons according to your buying habits and how they think it will get you to commit to a purchase. The decisions on where and when to best place your online advertisements are also being offloaded from you by Google Ads, where you just need to set various broad boundaries and the budget you are willing to spend, and the rest will be taken care of by their algorithms.
Is machines also replacing decision-making in the trading world? I hear you scream a silent “YES!”, while at the same time looking a bit apprehensive. Yes, manual trading is slowly but surely getting replaced by algorithmic trading, and this has penetrated the retail trading arena much more than you might expect. If you ask your trading friend whether he has heard of the term EA or Expert Advisor, most likely he would tell you that he has heard of the term, but not sure what it really is. A small handful of your friends will tell you that they have purchased a few EAs before in the past. And if you are lucky, you might know of someone in your social circle who actually writes EAs or other forms of algorithms for automated trading.
What that means is this. We are slowly but surely starting to delegate our buy/sell decisions in trading to machines. In fact, this had already started when IBM researchers published a paper at the International Joint Conference on Artificial Intelligence on Aug 2001. Or even before that. And this was made much more widespread when MetaTrader 4 (MT4) was released in 2005, and that opened up the world of algo trading to retail traders. And that is where the term EA comes about.
As with each of these eras, the early birds always catches the fattest worms. We are by no means the earliest birds, but we are definitely still early to the game. And by you reading this article right now, you know that there is only one thing left for you to do.
Take action and participate in algorithmic (or automated) trading, right now. Whether it means writing your own code and running it, or using someone else’s code, it doesn’t really matter.
Just, get in NOW.