Algorithmic trading was designed to take out the human element liable to mistakes, sentiment and superstition, but one student has designed an algorithm programed to replicate our fears and see whether there is anything rational — or financially rewarding — in superstitious trading.
The Superstition Fund Project, created and managed by designer and recent graduate Shing Tat Chung, is a trading algorithm that is based on common collective beliefs such as the western aversion to the number 13 and Full Moon.
Chung told CNBC’s “Worldwide Exchange” how the project came about when he was a Design Interactions student at the prestigious Royal College of Art in London.
“[It came about] mainly in two parts. I was researching superstitions a lot — how they emerge from our private sphere to infect the world we live in, in very surprising ways and also on technology — the implications of technology, speculative or present. Especially [on] algorithms, which are quite controversial right now”, he said.
Chung created the algorithm to have in-built superstitions, based on Numerology and Astrology and Chung hopes that the superstitious programing will make the algorithm to avoid trades at certain inauspicious times of the year.
“It has the fear of the number 13, for example, and full moons and solar eclipses. So it starts to short the market when it sees these indicators. But, it also connects its own patterns the way that we connect patterns up, such as 'lucky stocks' or 'lucky underwear'.”
Chung said that the algorithm is building up its own series of “lucky values” that will start to follow their own “logic” acquired through its successes and failures.
“It starts to generate its own lucky values, lucky numbers that it starts to trade again using the essence of the new logic.”
The pervasive fear of Friday 13— or to give it its proper name "Paraskevidekatriaphobia" — is common in the western world (though in Italy it is considered a lucky day) and has, apparently, affected markets.
The last four Friday 13 have been negative in the markets (though, of course, there could always be some correlation to the global financial crisis). Chung told CNBC that large and small business alike suffers on Friday 13.
“My mum’s takeaway will lose 30 percent of its profits tonight, and the American economy loses 800 million dollars every Friday 13.”
Though his fund is open to everyone- all you have to invest is a minimum of 2 pounds ($3) - it has fallen to -5 percent from June 1, the date it opened.
“It has recovered slightly from the last month, so it’s around -5 percent right now,” he said, adding that there were more projects to come. “This experiment will run for a year. I think the fund will carry on, I think up different algorithm experiments - and there’s a waiting list for a new experiment.”