The Share Trading Style Chess Grandmasters Use


How well do you remember 1997?

Your editor remembers very little. We recall the inexplicable decision by Mike Tyson to bite off a chunk of Evander Holyfield’s ear, but that’s about it.

We don’t recall the Asian financial crisis. Or hearing about the Dow Jones closing above 7,000 for the first time ever.

Years later, as we developed a fondness for artificial intelligence, we heard about another ground-breaking event that took place in 1997.

For many, it was the first real glimpse into a future driven by AI. For a select few traders, it was vindication of a movement that began life in the 1980s. More on that later, but first…

The fight of the century

Despite not setting foot inside a boxing ring, ‘Garry Kasparov versus Deep Blue’ might be the most important bout in history.

Kasparov is, as you may know, a Russian chess grandmaster born in Azerbaijan.

His opponent, Deep Blue, was a chess computer birthed in an IBM research lab.

On 11 May 1997, the two squared off against one another in a chess match.

This wasn’t the first time Kasparov had pitted his wits against computers. Or Deep Blue for that matter.

12 years earlier, Kasparov had played against 32 computers simultaneously, winning every game. Four years later, he defeated Deep Thought, another computer, two-nil.

Yet it would be another eight years before Kasparov would face Deep Blue for the very first time.

When he did, Kasparov was so confident he’d win that he refused an offer to split $500,000 winnings 60–40. For Kasparov, it was all or nothing.

In the very first game, machine got the better of man. Deep Blue became the first computer program to defeat a grandmaster.

But it couldn’t capitalise on its early advantage.

Kasparov won the next game, before they drew the two that followed. He then clinched the six-game series by winning the last two games. The final score was 4–2 to Kasparov.

Man, it turned out, was still too cunning for machine.

Yet Deep Blue would get its chance at revenge only a year later. And it would redraw our entire perception of artificial intelligence — and what it was capable of.

One giant leap for artificial intelligence

The six-game rematch started out promisingly enough for Kasparov, who took out the first game. Yet, despite losing, Deep Blue stunned Kasparov with a move that shook the grandmaster. Kasparov commented at the time that he could ‘feel’ and ‘smell’ a new kind of intelligence across the table. (It was later revealed that Deep Blue’s move was nothing more than a programming glitch.)

Kasparov was visibly startled. The move frazzled him so much that he lost the next game.

They would go on to draw the three games that followed, with the scores locked at 2.5 each.

Then, in the decider, Deep Blue did the unthinkable. It defeated Kasparov, snatching the match 3.5–2.5.

Man’s best and brightest had suffered a sobering defeat to a computer program.

Yet, historic as it was, Deep Blue’s victory shouldn’t have come as any surprise.

It could calculate 100 million chess positions per second. In contrast, Kasparov could think as many as 12 to 14 moves ahead.

Though not the first example, this was an early sign of the vast potential for AI.

Why do we bring this story to your attention?

Because the same thing is playing out across markets today. And most investors still don’t realise it.

Markets in which humans are losing ground to computers and algorithmic programs.

The influence of computers in trading today is not a new development. Trading pits have long been emptying out. Computers do most of the work today. Man is simply too slow to compete. And in a marketplace where speed can be the difference between making and losing money, computers can be essential to trading success.

But computers don’t just process orders. Algorithms, or ‘algos’, are part of the growing field of quantitative trading.

Think of algos as the Deep Blue of trading. Traders in their own right, they scan markets day in, day out, finding needles in haystacks. They are capable of parsing through vast amounts of information, spotting forming movements and trends in the market. Movements which signal whether a stock is on the verge of a major run-up…or major fall.

They can act on micro-trends quicker than any human could ever hope to. And, unlike you and me, they aren’t emotional. Gut instinct doesn’t drive their decision-making. Algos don’t care that your ‘sure-fire’ stock will bounce back if you only ‘hold on a little longer’. They rely on empirical data to tell you what the stock is likely to do next.

Playing against artificial intelligence, as Kasparov discovered, is a losing game.

As in many walks of life, AI is leaving people behind in the stock market. And while market experts can still pick winning stocks, quant and automated trading systems offer a more scientific approach to trading.

How do you fight back against the ever-growing algorithmic takeover of the market? You don’t. You harness its power to your advantage.

Luckily, there’s an easy way for you to level the playing field. It’s only a click away. Learn how you can start putting algorithmic trading to work for you here. Don’t wait any longer.

This week in Markets and Money

Records are a pretty reliable indicator of the “beginning of the end.”’ That’s how Vern Gowdie described the US market’s current record-breaking run in Monday’s Markets and Money.

It’s an evocative quote, but history suggests there’s more than a degree of truth to it. The Dow Jones broke through the 10,000-point barrier in 1999 at the height of the dotcom boom. The bust followed soon after, and it took the Dow another decade to break through that level again.

If that’s any indicator, the Dow won’t permanently breach the 20,000-point level until the late 2020s. In the meantime, an 80% correction looms as a real possibility, says Vern.

Only this time, the Fed won’t have any ammo to save the market. Read on to find out why.

In Tuesday’s Markets and Money, Jason Stevenson agreed that the market is heading for a correction. Though, unlike Vern, he believes it’ll be closer to 15% than 80%.

Trumpeting Trump’s bullish policies, and the positive long-term effect they’ll have on markets, Jason believes the market isn’t anywhere close to crashing. Because of this, a smaller correction, which Jason says could hit this month, presents a massive buying opportunity.

If the stock market pulls back, Jason says you should look to load up on your favourite stocks. Better still, there’s one sector the market hasn’t caught on to yet which might present the best buying opportunity this year. To find out more, click here.

On Wednesday, Jason turned his attention to gold. Despite the appearance that a gold bull market is underway, Jason says what you’re seeing now is a classic bear-market rally — one that’s surging on the back of political concerns in Europe.

With key elections taking place across the continent over the next few months, the potential rise of far-right parties threatens the stability of the European Union. That explains why you’re seeing gold surge.

In the short term, Jason says gold could rally to US$1,300 an ounce by the end of the month. Which makes gold penny stocks on the ASX a particularly attractive proposition right now. Jason believes some of these gold penny stocks could boost your investment tenfold! To learn more, go here.

On Thursday, as all eyes fixated on news that the Australian economy avoided recession, Callum Newman was looking elsewhere. He didn’t care so much that Australia recorded 1.1% growth in the December quarter. He was more interested in what a particular sovereign wealth fund was doing with its money. Callum believes it could be a bigger deal for the Aussie economy than the GDP release. Click here for the full story.

In Friday’s Markets and Money, Vern questioned Australia’s ‘Lucky Country’ status in light of the GDP numbers. While quarterly growth was up, Vern noted that the household savings ratio had fallen to 5.2%. Ominously, the last time it was at this level was just as Lehman Brothers was collapsing.

The GDP figures only look good on the surface. In reality, Australia spent $200 billion over the past 12 months to achieve $40 billion in economic activity. That’s what it’s come to for the ‘miracle economy’.

As Vern says, ‘it’s a bloody miracle that people believe spending money you don’t have qualifies as genuine growth.’ Debt is the name of the game.

What can you do to survive as Australia’s spiralling debt problem worsens? You’ll find some answers here.

Finally, before we leave you, a reminder to tune into this week’s Financial Anarchists podcast.

In this week’s episode:

Marijuana Mania: The next ‘hot’ sector on the ASX…

Why an interest rate rise could be good news for stocks…

Why we’re all invested in Aussie property even if you don’t own a house…

How long before the Dow Jones hits 100,000 points?

Will Snapchat be the next Facebook hit or Twitter flop after their massive IPO one-day gain?

And more…

Click here to listen to the podcast.

Until next week,

Mat Spasic,
For Markets and Money

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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