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Technology Stocks : Applied Materials No-Politics Thread (AMAT) -- Ignore unavailable to you. Want to Upgrade?

To: willcousa who wrote (24640)	10/21/2010 9:56:53 PM
From: FJB	Respond to of 25522

RE:machine trades I think you are right. I did not believe until a stock I owned went down 35% the day after they reported their best quarter ever. Their forecast fell a little short, but 35% in one day on over 10X normal volume cannot be people trading on fundamentals.

To: willcousa who wrote (24640)	10/21/2010 10:25:54 PM
From: Sun Tzu	Read Replies (1) \| Respond to of 25522

I take it that you think machine trades are "mindless" trades that do not take the fundamentals into account and cause huge fluctuations. In fact, you have it half right and that half is backwards ;) Broadly speaking there are two types of machine trading. There is your typical quant trading that has little to do with the fundamentals. These are mostly market neutral trades and aim to make pennies or even fraction of pennies through large volume trades. The process makes the market more efficient and often more stable...which prevents more quant trades. D.E. Shaw is a top quant trader and in its heydays, nearly one-in-five trades on NYSE was from D.E. Shaw and I assure you they made the market more stable than not. Then there is algorithmic models for "position" trading. Ironically, these trades have a lot more to do with fundamental analysis than quant trades. Hypothetically speaking, if for whatever the reason, Chase bank drops 5% I can use fundamental analysis to evaluate say BoA to be now 5% overpriced. So my programs will dump my BoA shares. Which will cause a drop in price of BoA and may make someone else' model to read Chase as still being overpriced and the cycle can repeat. I've oversimplified the process because in reality it will have to be a basket of stocks and often there will be options and hedging around them. But because everyone's baskets and models are similar they affect each other. Depending on what else is going on in the market, your stock (if it is major enough and liquid enough) can become the source of funds based on "fundamentals". So be careful what you ask for (in this case trades based on fundamentals) for you may get it ;) ST