The Impact of Trading Bots on Market Behavior

As trading bots become more common in both stocks and crypto, I think it’s time we discuss how this surge might change things. Here’s what’s generally known about these bots: they grasp human emotions but don’t actually feel them. For them, it’s not about fear or greed; it’s all about predicting outcomes. So, when a bot thinks a stock or crypto is gonna go up, it buys. If it senses a drop, it sells. The timing hinges on the specific parameters they use. Is it current news? Institutional buying signals? What about situations where the floor is rising but the ceiling stays put, hinting that something might blow up? I bet some bots are programmed to spot that. If a bot uses that kind of logic, it’ll go for a buy when the ceiling and floor align. All the bots watching that crypto will jump in at the same moment. If something negative hits the news, those bots will sell simultaneously, and that could send the price plummeting. These bots are always on the lookout, working nonstop, without needing breaks or distractions. Since there are tons of them now, they can pinpoint the exact moment the floor and ceiling line up or react the instant bad news drops, leading to sudden and explosive market moves, either up or down. Another thing to consider: the signals that bots react to are shaped by what the humans who built them expect. It’s not just about the systematized signals; the bots’ actions influence those signals, too. So when the floor starts to rise and the ceiling and floor align, it’s not just market forces at play.

Thanks so much for replying! I agree with you on all points except one.  I agree, bots remove emotional decisions, and can react to market information much faster than we can.  That is a good point.  But doesn't that make speed more important?  If a stock rises and falls quickly based on the market, you have to be able to catch it rising and falling to make money.  If you buy in too late, it will have already risen all it is going to, and will start to fall, and you will lose money.  But yes, I think you are also right about poorly designed bots, and I think that's a real danger.  If someone "buys" a bot at a discount, they could receive something that will lose money, just as a too-emotional human trader will. Thanks again for your input!

I've seen several bots, but they don't make decisions during trading; they follow a programmed strategy. If a trader chooses the wrong strategy, it's not the bot's fault. If your bot is programmed to profit from market volatility, and the price fluctuates or falls sharply, you'll suffer a loss. But since the exchange sees all of the trader's positions, it's like playing against a cheater with open cards.

It's easy to conclude from your premise that the movements would eventually grow more and more predictable. Would it turn me into a trader? I don't think so. In reality, it's easier said than done. If the US bombs Iran tomorrow, the immediate expectation is that the market would go down. Will it? By how much? Until when? If Russia and Ukraine agree to stop the war in Europe, the assumption is that the market would rise. Will it? In the end, timing the market isn't easy despite general observations that Bitcoin follows macro-economic trends, that it correlates with tech stocks, that it reacts this way and that to changes in interest rates, and so on and so forth. Trading remains hard and, I believe, most often not profitable, whereas hodling is almost a guarantee that you'd be rewarded in the end.

That's probably true about what's happening in the news.  But I think the charts themselves are more likely to follow the patterns traders already think they do, because some bots will trade just from the charts, not from world events, causing the very patterns they expect.  The bots expect the crypto to rise based on the chart, so they buy in, so it rises.  The bots expect a crypto to fall based on the chart, they sell, so it falls.  In that way, the charts will grow more predictable.  But you have a point--it's hard to predict what cryptos and even stocks will do based on real-world events.  The thing is, some bots ignore world events completely, and just look at the charts, and it's those bots that will expect and cause more "predictable" outcomes in the charts.

Maybe we can see how it happens in forex. I find it hard to believe people don't use bots over there. Since the market is older than crypto, there should be more than enough data to glimpse how does the market changes. I still think even if the market becomes more predictable, it won't make the pie smaller because people jump into it. Even if the bot runs perfectly, a human might get influenced by other factors that they changed it anyway. The biggest winner is probably the 10% who knows that they can utilize the self-fulfilling prophecy in the end.