"dumb" and "sophisticated" aren't mutually exclusive, especially when you look at this particular example: only sophisticated algorithms could automatically react to Tesla announcing new product, so only them could do dumb decision and take April Fools joke into account when trading.

The point they seem to be making is that benefits of fast trading massively outweigh the losses from making dumb decisions like there, so algorithms that integrate more and more input signals into decision making win in long term - no matter how rough are their assumptions about those signals.

It's not about algorithms being fast and simple - it's about algorithms doing more and more complicated stuff (not in "how", but "what" they do), so they can easily make (and will make more often with time) dumb decisions when looking from human point of view - but at the same time they can quickly react on much more types of events that normally would have to be noticed by human first, or already deduced from market actions.

> If you are so certain that they are dumb and arriving at incorrect prices (but quickly) it should be easy for you to go trade against them and make a lot of money.

It is easy to do this, as demonstrated by the article. Just con the algorithms with fake newsfeeds.

That's also illegal though, so no one is going to go out and prove it. They shouldn't need to when we can see natural experiments like this.

It's easy to con the algorithms now with a fake news story because such fake news stories are extremely rare and not worth programming against. If such stories were common the people who run these programs would update the to better reflect how the real world was working and your ability to profit against them using this strategy would go away.

> "I think that you and cbsmith significantly underestimate the sophistication of these algorithms."

Let's remember that this discussion was kicked off by some of these algorithms being tricked by a blatant April Fools joke.

The way some people talk about trading algorithms, you would think that they believe they are Strong AI that is lurking in datacenters biding their time. Really though, compared to a human, they are quite dumb. They just happen to be fast. Being smarter than the algorithm isn't sufficient if it is somewhat smart but blazing fast.

> Being smarter than the algorithm isn't sufficient if it is somewhat smart but blazing fast.

Sure it is. There are lots of people that make money in the stock market by making long term bets.

Yes, there are a lot of buy side strategies, but what we're talking about here are HFT algorithms that balance out several times a second. They drive much of the liquidity of the markets and are the ones that react instantly to new pieces of information.

By that logic, this does happen: "it should be easy for you to go trade against them and make a lot of money."

So what the hell was your point?

Stock markets aren't zero-sum. You can successfully do long-term investments without having to "trade against them".

Which suggests that:

> "There are lots of people that make money in the stock market by making long term bets."

Is not actually a counter to:

> "Being smarter than the algorithm isn't sufficient [to trade against it] if it is somewhat smart but blazing fast."

I think you grossly overestimate their sophistication. Shaving a few instructions off is helpful, avoiding cache misses is critical. There literally isn't enough computation time to do anything terribly sophisticated in terms of looking through large amounts of data to arrive at a conclusion about possible linguistic subtext.