Swarms and Wall Street
Thanks to Ugly, I had the opportunity to read this NYT article regarding swarming behavior. I’d highly recommend it, especially regarding the concept of “swarm intelligence” when each individual is so crude. And check out the differences in motives between locust swarms and Mormon cricket swarms (I didn’t even know there were religious, cannibalistic insects- maybe they should be called Donner crickets).
This all got me to thinking… that same swarm behavior the scientists are studying, wherein a group of insects, flock of birds, school of fish, etc are given the option between alternate “leaders” going in different directions, and somehow almost instantaneously make a collective decision to follow one and ignore the other, without any individual consciousness of the decision…
Is this not the same swarm behavior that emerges among traders?
Picture the market opening gap up, rising for 20 minutes, then dawdling sideways for 5 minutes on dropping volume. Suddenly we get three ticks up, then five ticks down, then five ticks back up… (my heart is beating faster just thinking about it), and then that sucker goes.
We love to attribute the surge to the ubiquitous “they” or “the big guys” or “those sons of bitches” depending on whether we’re on the right side of the move, but in reality we know it’s all of us, swarming.
If this guy would turn his computer models of ants and crickets (and interstate traffic) towards the behavior of market participants, he may be hot on the trail to the most successful computer trading system in history.
Well, except for those quants, those brilliant hedge fund guys, those Nobel prize winners… they’re all Ph.D.s and computer geniuses and have this all figured out already. That’s why nothing catches them or their 57-sigma models by surprise. 
uglychart.com: a blog about stocks » Blog Archive » links for 2007-12-05 said,
December 5, 2007 @ 12:32 am
[…] Swarms and Wall Street • DummySpots.com (tags: swarm trading ats) […]
Do stock traders show swarm intelligence ? « Mixotricha said,
December 8, 2007 @ 2:40 pm
[…] by geertb on December 8, 2007 In a blog at dummyspots.com a trader compared the swarm intelligence of e.g. ants to the behaviour of a swarm […]
NSK said,
December 9, 2007 @ 3:06 pm
Nice post. I do some research on the business applications of swarm intelligence and specifically its effect on business adaptability. If you want to research the relationships between swarming and trading, you can find economics books that have already been written on this subject where researchers emulate economic behaviours with swarms. It’s a lovely academic field, and it arose in prominence only from the 1990s, so it’s still new, exciting, and easy to make a new discovery. Many companies are actually saving millions of dollars by using swarm intelligence in their operatings, for example airlines, truck companies, etc. I expect this field to cause major revolutions in business and social sciences thinking within the next decade. Good to see people from the financial world understanding the swarm theory.