Algorithms Take Control of Wall Street: Artificial intelligence is here. In fact, it's all around us. But it's nothing like we expected.
These sudden drops are now routine, and it’s often impossible to determine what caused them. But most observers pin the blame on the legions of powerful, superfast trading algorithms—simple instructions that interact to create a market that is incomprehensible to the human mind and impossible to predict.
For better or worse, the computers are now in control.
Bradley was among the first traders to explore the power of algorithms in the late ’90s, creating approaches to investing that favored brains over access. It took him nearly three years to build his stock-scoring program. First he created a neural network, painstakingly training it to emulate his thinking—to recognize the combination of factors that his instincts and experience told him were indicative of a significant move in a stock’s price.
But Bradley didn’t just want to build a machine that would think the same way he did. He wanted his algorithmically derived system to look at stocks in a fundamentally different—and smarter—way than humans ever could. So in 2000, Bradley assembled a team of engineers to determine which characteristics were most predictive of a stock’s performance. They identified a number of variables—traditional measurements like earnings growth as well as more technical factors. Altogether, Bradley came up with seven key factors, including the judgment of his neural network, that he thought might be useful in predicting a portfolio’s performance.
Delaware senator Ted Kaufman sounded an even louder alarm in September, taking to the Senate floor to declare, “Whenever there is a lot of money surging into a risky area, where change in the market is dramatic, where there is no transparency and therefore no effective regulation, we have a prescription for disaster.”