Rise of The Rat Traders

REVEALED: How a colony of Austrian lab rats were trained
to outperform the world’s top traders!


This could easily be a brilliant April Fool’s Day joke…

You see, I’ve just been reading about a fascinating art project by Austrian financier Michael Marcovici.

He wanted to show how highly paid jobs could eventually be replaced by machines.

But I think even he was surprised by the results.

First, a bit of background…

His firsthand experience of trading the financial markets led Marcovici to believe their were two key skills of success:

Pattern recognition and the ability to act with discipline.

And crucially, Marcovici believed these skills could be performed just as well – if not better – by other, more humble, entities than human traders.

His point was it shouldn’t require a remuneration package the size of a small planet to successfully do battle with the markets.

So with tongue firmly in cheek, he drafted in a team of novice Forex traders to put his theory to the test.

Only they weren’t the wannabe whiz kids you might have expected: no, they were a colony of laboratory rats – 40 male and 40 female!

Now I think there was a bit of social statement being made here too (remember this started as a pure art project).

His choice of rodents (whom he named Mr Lehman, Mr Morgan, Ms Kleinwort etc…) to represent bankers seems significant in the post-credit-crunch economy. But I’m sure he’s since played this down a bit. After all, the very people he parodied have now become potential clients!

Yes, word has it the hedge funds and institutions are sniffing around and are interested in recruiting their very own team of Marcovici-trained rat traders.

Sounds incredible, I know. Can it really be true?

How to train a rat to trade your Forex account

So how on earth did Marcovici teach his rats trading skills to begin with?

He says his first batch of test animals turned out good in their own right, but the species really came into their own in later generations. The money-making gene just got stronger and stronger. It makes his lab team sound like the de Rothschilds of the mammal world!

And he developed his super strain of rodents with a three-step process:

Step 1: Prepare a suitable playing field

Obviously there was no way he’d get his rats following candlestick charts on a screen like you and I, so Marcovici had to find a way of manipulating the market data into a format the rats could relate to.

And here’s the clever bit…

He’d discovered from third-party research that rats are fond of the piano (or at least they respond to piano music), so he went about turning trading data from the EURUSD futures contract into piano sounds.

He called the transmissions ‘ticker tracks’.

He used changes in pitch to relay increases and decreases in price, and changes in sound modulation to transmit volume data, i.e. the frequency at which the trades took place.

The rats were then installed in their little glass boxes with the piano sounds piped in through speakers. They now had the rodent equivalent of a multi-screen trading rig.

So far, so good… What next?

Step 2: Teach the rats to trade

The rats were then trained to press a green button for ‘long trade’ and a red button for ‘short trade’. They made their calls in anticipation of the next movement in price (or the next phase of ‘piano music’ in the pattern as they saw things).

Call it right and they were rewarded with food.

Get it wrong and they received a small electric shock (I know, not very nice).

Some of the team were soon performing very well and showing strong skills.

“The good rats got fat very quickly”, says Marcovici.

So by now, they had been trained to recognise and react to a ‘playbook’ of price patterns and the strength of this arrangement is how the focus is purely on pattern recognition.

Unlike human traders, there were no outside influences affecting the rat’s judgement.

You and I are constantly bombarded with potential threats to our self discipline including:

  • The struggle against greed and fear as soon as we bring money into the equation
  • The financial media promoting their skew on likely market movements
  • Our own preconceived directional biases we might already be carrying into the trading day

Meanwhile, the rats were left entirely to their own devices in the harsh, but arguably purer environment of food versus electric shocks.

And after 12 weeks Marcovici had four outstanding performers on his hands.

The aforementioned rats: Mr Lehman, Mr Morgan and Ms Kleinwort had now been joined by a new colleague: Ms Coutts.

He says at this stage the four rats were outperforming leading fund managers with their market calls.

The four of them were then entered into the elite trader’s breeding programme (I know, all sounds very grubby doesn’t it?) and the trading acumen of their offspring was eagerly anticipated.

Step 3: Develop a trading bloodline

Twenty days later and 28 new trading rats were on the scene and ready to enter the program.

They were quickly trained and tested and Marcovici says the results ‘were outstanding’.

The second generation of top traders delivered an even better performance than their parents.

Now I’ve seen various sets of statistics regarding the rats’ trading performance, but none give a totally transparent insight into how good they are.

And if he really is onto something good, you can’t blame Marcovici for keeping some secrets to himself.

Of course, the hoodwinking and reeling in of over-eager financial institutions could be part of the desired artistic effect. I guess you’d never know for sure until you’d seen Marcovici’s rats in action for yourself.

Oh, and one small drawback – the rats do get tired and need to rest after 10 minutes of trading, so you’d need a lot of them. And with a lifespan of a year or so, you’d better squeeze the most out of your top performers while you have chance too!

Take a look at ratraders.com and decide for yourself.

Rattraders! – the TV show

Ok, so I’m not totally convinced about the rats.

But that carrot (food) and stick (electric shock) approach got me thinking…

Can you imagine how quickly you might pick up the ability to recognise patterns and respond to them correctly if your physical survival depended on it to the exclusion of everything else?

Forget the ego games and discipline issues traders are sometimes troubled by. That stripped-to-the-core scenario would really focus your mind on what’s critical!

In fact, I reckon it’s got the makings of a TV reality show already…

Any volunteers?

Be Prepared: Market Moving Data Coming This Week (London Time).

Wednesday 18th February:
09:30    GBP    Average Earnings Index
09:30    GBP    Claimant count change
09:30    GBP    BoE MPC meeting minutes
13:30    USD    Building Permits
13:30    USD    Producer price index
19:00    USD    FOMC meeting minutes

Thursday 19th February:
15:00    USD    Philly fed

Friday 20th February:
08:30    EUR    German Manufacturing PMI
09:30    GBP    Retail sales

Monday 23rd February:
09:00    EUR    German IFO business climate
15:00    USD    Exiting home sales

Tuesday 24th February:
07:00    EUR    German GDP
10:00    EUR    Consumer price index
15:00    USD    CB consumer confidence

We have quite a busy calendar of British and European reports this week. And be careful if you’re trading euro pairs, especially with this Greece situation rumbling along as it is.

Current talks between the Greeks and EU ministers had just broken down as I wrote this week’s eletter. So let’s keep a close eye on that situation and I’ll catch up with you again very soon.

Until then, happy trading.