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Man vs. Machine and The Future of Trading

Jeff BishopJeff Bishop ·

I’ll keep this short and sweet. Trading stocks that have news in them is not easy. After all, not everyone is receiving the information at the same time. Some traders use “web scrapers” that constantly scan websites for keywords that can potentially move a stock.

When the news hits, they have automated buy or sell orders in place, ready to take advantage of the situation.

Others may use traditional services, like the Bloomberg terminal, to get news in a timely manner. However, some traders simply rely on free tools. For them, they generally see a volume spike and are left  wondering “what’s the news.”

Earlier today, I spotted a news reading program in action.

The catalyst:

Source: Twitter

Well known short seller, Muddy Waters Research, sent out this tweet that appeared to have a negative tone towards Express Scripts ( ESRX).

At the same time, a machine reading program came in and bought 110 ESRX May 5 $61.5 puts for $0.17.

Check out what happened to the price of the stock, it went from 62.35 all the way down to $61.83, in a blink of an eye.

Source: TradingView

That red bar is the largest candle that the stock has seen today and it was due to machines reacting to the tweet. Now, it turns out that there wasn’t much in this tweet to spark a further sell off, and the stock began to retrace.

However, the savvy trader may have analyzed the tweet and found a scalping opportunity there. That said, these machines follow a “shoot first, ask questions later” approach to trading.

It pays to be informed even if you are not a news trader. These types of events happen all day in the stock market. With news, you’ll need to decipher it before you get in, and machines just simply see the headline but don’t really look into analyzing what the catalyst really means. That said, there is a lot of money to be made when the machines mess up, after all the machines are all about speed.

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