Why you shouldn't panic about the market volatility

Wall Street’s recent wild ride isn’t driven by nervous portfolio managers, retirees looking at their 401(k) statements or any some other human traders.

Instead, machines are generating the trading decisions.

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Computer programs execute buy as well as sell orders based on complex algorithms as well as formulas, without a human involved inside the process.

On a typical trading day, computers account for 50% to 60% of market trades, according to Art Hogan, chief market strategist for B. Riley FBR. When the markets are extremely volatile, they can make up 0% of trades.

Related: What will be a stock market correction, as well as some other things you need to know

The Dow fell nearly 1,0 points at one point Monday, before recovering more than 400 points to end the day down 1,175. On Tuesday, the Dow opened down 567 points, then raced to a 350-point gain shortly after.

“A machine will be generating a decision based on the fact that will we reached a level to buy or sell,” Hogan said. The problem with that will will be everyone’s algorithms are pretty much the same, they key on the same trigger points. that will’s causes actually fast momentum swings.”

the item’s not that will humans didn’t play any role inside the stock market’s moves. A stronger-than-expected wage increase in Friday’s jobs report led investors to make trades based on the assumptions about what that will might mean for inflation as well as the Federal Reserve’s actions going forward.

nevertheless once they gave the stock as well as bond markets that will initial push, the computers took those initial moves as well as ran with them.

“the item becomes self-fulfilling cycle, as well as you see This specific whipsaw action,” said Hogan. “For the most part the item’s the machines taking over.”

Related: Dow storms back after dipping into correction

There will be one advantage to This specific kind of selling — the machines don’t suffer by doubts as well as fears the way human traders may when they sense an opportunity to buy.

The program trading that will sends stocks down so quickly can send them up just as fast. that will’s one reason why the market came off its lows as well as rebounded more than 400 points late Monday. the item’s also probably why markets opened down more than 500 points Tuesday, only to jump several hundred points inside the first hour of trading.

Experts say human traders might be slower to get back into a battered market. as well as human reluctance could allow a sell-off to go on longer as well as deeper.

“Machines do a very not bad job of removing the emotion by the short-term trading activity,” said Russell cost, senior economist for Ameriprise Financial. “We are likely to see them look for opportunities to buy created by the recent down draft.”

sy88pgw (brand new York) First published February 6, 2018: 1:27 PM ET