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Lessons from gambling bots

Over the last period of time I have been rather fortunate to be able to observe some rather tricky software that operates 5 days a week on an overseas share market - a bot - which is simply not available to the general public and it has been a most fascinating and educational experience.

This is not my normal area of financial activity or my usual range of fnancial investment and it is really "heavy duty stuff" that deals in many millions of dollars of transactions every day and one which works in a continuous environment of milliseconds and real time instant transactions. It is not for the weak of heart!

How this came to pass is unimportant but you may find the following observations interesting and are certainly not in breach of any confidentiality agreement. Now bear in mind that this is just one bot of many that it is in the world of share market trading and it leads me to ask what future there may be in "manual trading" by individual traders, or punters if you like, as the mathematical advantage that these software bots have is enormous.

Unless you had some extreme knowledge and research to draw on as an individual that wasn't available to 99% of the "other experts", your path to mega riches in the world of share traders it would seem impossible or extremely hard to imagine at best.

So what are their advantages? Well a couple of things "leap off the page" for mine. Firstly their mathematics is absolute and they make no errors in calculation. None.

Whatever parameters you place in the programme are followed explicitly - no variations or unfortunate errors that a poor human makes in the "heat of battle".

The other thing that strikes me as really important is that they don't get impatient, they don't get tired, they don't get bored with the repetition. They don't care if you win or lose and have no emotions. Now if you were punting on the horses yesterday, reflect upon that statement and how it related to how you may have felt at different times of the day.

The mathematical discipline of this thing is an awesome thing to watch. Firstly, and naturally, it should be pointed put that there are some human decisions regarding which stocks to trade and either buy or sell "inputted" to begin with and I have no idea how these decisions are made. Obviously they would be made with a great deal of research and past experience. Not dissimilar I would imagine that we, as mere horse racing punters, would describe as "form".

But the clinical way this thing goes about its business is what fascinates me. Regardless of whether it is buying or selling, as long as it is within its price parameters, it consistently, and I mean 100% of the time, always will only buy its target at at least one "base point" lower that what may be in the market at the time or sell at least one "base point" higher - depending on where it's very complicated calculations and algorithms perceive the market to be true.

All this calculation and forecasting happens in absolute milliseconds and continues for hour after hour while this particular share market is trading.

So here's the rub: the difference between what we as humans might do in the space of the day and what this thing does is enormous. I watched it the other day trying to buy 400,000 shares in a particular company for hour after hour at $1.32 but the shares were in the market at $1.33 and static. It's target range was $1.30 to $1.34. And so it sat. Like a mexican standoff almost all afternoon.

Now what would have happened if we as mere human nothingnesses had have been attempting that? Hour after hour for 1 cent a share?

It is not hard to conclude that after the first few hours of it all, most of us would have thought: "bugger this - I have to go to the supermarket and get some stuff" or one of the other hundred things a day we have to do in the space of an average day and would have paid the extra 1 cent just to get it over and done with and move. After all it is only about 0.75% of the trade!

Mistake 1. It doesn't take much thinking to work out that if this was just one of the trades for the day (there were seven of them from memory) that 0.75%, if applied over all seven would add up to.........ooops!!

And the people that use thing don't tolerate any oopsies for terribly long! To my way of thinking, the greatest advantages mechanical trading bots have over the rest of us are these:

They don't get impatient.

They don't care if they "win" or "lose".

They don't get tired.

They don't make mistakes.

They don't get distracted by other activity.

They have no other time responsibilities.

Now having written all that, the question than gets asked "so which bot am I using for racing?". Well, paradoxically, I still mostly bet manually but a few afternoons a week, when "other things" call, I do use a bot on Betfair to do the business when I simply can't be at the computer. And how do the side by side results compare? I'd say over the last 12 months about line ball with the bot trading doing about 5-6% better. But is it 5% less entertaining? Is the boredom and repetition worth the extra 5% sacrifice?

That may well be the crucial question for most!

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