Search

ALGO GENESIS

CATEGORIES

What is AI Trading?

AI trading or Artificial Intelligence Trading simply means utilizing highly sophisticated software that makes it’s own decisions in trading. 

In this case, we are talking about stocks, forex, option, CFD etc.

In the financial technology industry, there are many kinds of AI in play to assist human traders in trading such as:

  • Robo Advisory

  • Expert Advisor

  • ANN Integrated Expert Advisor

The world is and has transitioned to the 4th wave of science – Wealth Generation by Artificial Intelligence. And yes, there is a very good reason to do so.

How AI replaces Human in Investment

Before AI came into play, human has been constantly monitoring and analyzing market trends in hope to reap rewards from the financial markets. The greatest trait in investing by using a human trader/analyst is the ability to use intuition and experience to calculate the probability or predict the outcome of the market.

However, this is also a known double-edge sword. 

Humans are emotional by nature and can be very volatile and unpredictable like the market. Hence, 97% of a trader’s downfall is due to their own emotional “cleverness”.

#1 Example of this downfall

People Never Follow Through with their Analysis.

97% of trader’s do not lose their money from bad analysis, instead they lose their money because they never follow their own analysis. 

In almost each occurrence where a trader makes a trade that happens to go south, the first thing they do to resolve this is by cutting the trade and making a loss. And, if not immediately, they will notice in the next few hours or days that their analysis was actually spot on – the loss trade actually went back up! 

Yes, their analysis were never wrong. Instead, human cleverness usually get in the way when they should have held their positions longer.

THE 3 ROOT CAUSE TO THIS DOWNFALL: TIME KNOWLEDGE EMOTIONS

Before AI came into play, human has been constantly monitoring and analyzing market trends in hope to reap rewards from the financial markets. The greatest trait in investing by using a human trader/analyst is the ability to use intuition and experience to calculate the probability or predict the outcome of the market.

However, this is also a known double-edge sword. 

Humans are emotional by nature and can be very volatile and unpredictable like the market. Hence, 97% of a trader’s downfall is due to their own emotional “cleverness”.

  • TIME

    Most Retail traders have at least one part time job, aside from market trading. Hence, depriving traders opportunities to enter or exit the market favorably.

  • KNOWLEDGE

    Unlike financial analyst, most retail traders are self-taught and trade based on bits and puzzles of information received and read online. Hence, they are never prepared for the actual market.

  • EMOTIONS

    The Killer trait that stems from the earlier two root causes. Due to lack of time and knowledge, retail traders tend to act rashly. Typical retail trader will analyse the market once and enter at least 1 trade before going to work. And the next time they check their investment would be after work. Most often than not, retail traders are tired after the days work. In the addition to the lack of knowledge, retail traders tend to make emotional mistakes that they regret later.

AI Trading - Sophisticated Analytic & Execution Software

Hence, to eliminate the 3 Main Human Limitation – Time, Knowledge and Emotions, the financial industry moved into automation technology.

By utilizing AI technology, markets are not only able to be monitored 24/7, analytical tools can be utilized at a touch of a hand without analytical errors, but most importantly, emotional mistakes are eliminated.

 

Did this answer your questions?

RELATED ARTICLES

  • How is the entire process like? Where do I fit In?