Computerized, self-driving vehicles are being hailed as an important advance in highway safety. In the stock market, by contrast, computerized trading algorithms are being accused of reckless high-speed investing that is exacerbating recent price plunges and bursts of 澳洲幸运5官方开奖结果体彩网:volatility.

"Rules-based strategies will take emotion out of it so when selling happens, more selling can occur and when buying happens, more buying can occur," is what Todd Rosenbluth, director of ETF and mutual fund research at CFRA, . 

At the open on Friday, the 澳洲幸运5官方开奖结果体彩网:S&P 500 Index (SPX) was up 0.81% from Thursday's ꦑ;close. As of 10:15 AM New York time, this gain had increased marginally, to 0.85%.

'Herd Behavior On Steroids'

As alluded to by Rosenbluth, algorithmic trading, also called 澳洲幸运5官方开奖结果体彩网:program trading, can create self-reinforcing trends that unfold at lightning speed, far beyond the ability of human investors and traders to keep up and undertake evasive action. In fact, some programs are designed precisely to follow trends, and the recent 澳洲幸运5官方开奖结果体彩网:correction in stocಌk prices was intensifie🅷d as these algorithms suddenly shifted from buying to selling.

"It's just not normal, this action [was] like a rubber-band broke," according to Keith Lerner, chief market strategist at SunTrust Private Wealth Management, in remarks to Barron's. 澳洲幸运5官方开奖结果体彩网:Momentum investing, in whꦅich investors chased the hottest stocks, was a factor in th🧜e market's rapid rise. Now the opposite effect may be in play, with selling pressures accelerating.

"The truth is that the market is just as irrational and divorced from 澳洲幸运5官方开奖结果体彩网:fundamentals on the way up as on the way down. It is the nature of the markets more so today than ever, as a result of the computerized 澳洲幸运5官方开奖结果体彩网:high-frequency trading strategies of the Wall Street wis🌌e guys. What we've watched this week is herd behavior ℱon steroids," .

'Poisonous Feedback Loop'

Indeed, the problem is heightened by the fact that many of the investment firms that create trading programs and algorithms follow similar, if not identical, decision rules. The key episode in the 澳洲幸运5官方开奖结果体彩网:1987 stock market crash, the 澳洲幸运5官方开奖结果体彩网:Black Monday drop of 22.6% in the 澳洲幸运5官方开奖结果体彩网:Dow Jones Indu🌠strial Average (DJIA), w𒐪as the result of a "poison𓆉ous feedback loop" among these programs, as an earlier Barron's article described it.

In the ensuing years, trading algorithms have become increasingly more pervasive, controlling an increasing percentage of total transactions, and thus adding to the dangers. (For more, see also: Could Algo🌺 Trading Cause a Bigger Crash Than 1987?)

Bots Rule

A recent study finds that nearly $8.8 trillion of financial assets world൲wide were controlled by trading algorithms as of 2016, and th꧃at this figure is projected to grow at average annual rate of 8.7%, reaching $18.2 trillion by 2025, .

Meanwhile, data from JPMorgan Chase & Co. found that quantitative and 澳洲幸运5官方开奖结果体彩网:passive investing strategies account for about 60% of all equity assets, a figure that roughly doubled in ten years, . By contrast, the same data indicated that only about 10% of equity trading volume now comes from human individual investors and 澳洲幸运5官方开奖结果体彩网:discretionary investment managers. Passive strategies include 澳洲幸运5官方开奖结果体彩网:index funds, whether structured as traditional 澳洲幸运5官方开奖结果体彩网:mutual funds or as ETFs.

Opposing View

Defenders of automated trading systems cite several key point♏s in their favor: consistency, discipline, elimination of emotion, and analytical rigor. They assert that such programs bring more logic into the trading and investing process. Also, defenders of high speed trading see economic logic in market prices adjusting quickly to changing fundamentals, or changing perceptions of fundamentals.

On another front, in response to the experience of 1987, major trading venues such as the 澳洲幸运5官方开奖结果体彩网:New York Stock Exchange (NYSE) have implemented so-called 澳洲幸运5官方开奖结果体彩网:circuit breakers or 澳洲幸运5官方开奖结果体彩网:trading curbs that temporarily halt trading in the midst of a steep selloff. The idea is to stem a panic, and let market participants step back and take a breath.  (For more, see also: 澳洲幸运5官方开奖结果体彩网:The Pros An﷽d Co𒆙ns Of Automated Trading Systems.)