The reliance on Artificial Intelligence over the last few years has seen some dramatic growth rates. Wired revealed that more than 1,300 individual hedge funds have come to rely on some type of computer-driven modeling to undertake most of theist trades nowadays.
It makes sense that you have to be fully aware of the game’s rules in order to play it successfully. In order to successfully trade and or invest in the financial markets, taking the impacts of A.I. into account is now more important than every before. Trading has changed rather dramatically over the past decade. Trading algorithms and artificial intelligence-based computer programs today dominate the day to day trading on financial markets not only in the U.S., but also in Europe and around the developed world. Without one of these fighting in your own corner today, you no longer have a prayer of competing against the Big Boys of Wall Street.
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It is an understatement to say that A.I. is the financial markets game changer. Human beings may continue to be a significant part of the trading process, but artificial intelligence is continuously usurping more of the trading roles. The British-based research company Coalition recently released a study on the matter. It revealed that electronic trades today amount to nearly 45 percent of cash equities trading’ revenues. It is true that the hedge funds are a bit more conservative in trusting their coveted trades to the machines and automation, yet even a huge number of them rely on the artificial intelligence analysis for creating sound investment ideas and constructing their portfolios today.
A.I. Systems Possess Three Key Advantages Over Human Traders
Artificial Intelligence has three main advantages over human traders these days. These include discovering patterns, sentiment-based predictive trading, and trading speed. We will look at these in more detail next.
Todays phenomenally powered computer systems can compile and analyze enormous amounts of data in from seconds to minutes. It allows them to find repeating historical patterns for intelligent trading strategies that are usually invisible to human-based investors. People can never hope to compete with the data processing power of these increasingly intelligent machines at anywhere near the speed of them (if they are able to at all).
As one telling example, artificial intelligence is able to easily screen through literally thousands of individual stocks in a matter of seconds. CNN states that hedge funds are increasingly relying on A.I. to engage in high frequency trading so that they are able to contemplate fully 300 million individual data points from the NYSE New York Stock Exchange within the initial trading day hour.
Sentiment-Based Predictive Trading
Through constant analysis of social media comments, news headlines, investing blogs, and other sources, artificial intelligence is able to correctly forecast stocks’ direction as well as rival traders’ choices using what is called sentiment analysis by Forbes. This is the process for categorizing the sentiment (or opinions) of individuals that they discuss in writing.
The artificial intelligence’s technology allows for it to practice trading with super-human speed. Even a single millisecond can make a real difference for price execution and spreads. Thanks to A.I. automated trading, you do not have to contact your broker at all anymore.
How Does A.I. Actually Work and Impact Stock Trading Today?
Without a doubt, artificial intelligence is altering the landscape for stock trading today and for tomorrow even more. Relying on the power of A.I., robo-advisers can analyze literally millions of individual data points to pursue trades at the best price. Analysts are able to predict the direction of the financial markets with improved accuracy and trading firms are able to better manage and reduce their risk in order to deliver greater returns in investing.
A major factor in the success of this artificial intelligence software for trading the markets is to enable traders to improve their buying and selling operations so that day trading moves at the speed of light for more efficient and higher yielding trades. This machine possesses the possibilities to streamline the means of trading through crunching enormous sets of data, finding related patterns, and then creating a suitable output that will steer the traders in the right direction according to asset prices it can predict with some degree of accuracy. To do so, these algorithm-dependent trading protocols adhere to a three step methodology that we look at next here.
- Gathering the Data – Past events are able to substantially impact present and future trends and trades. It is why historical trading data is a highly useful means of predicting future price movements for given financial instruments. It is sometimes difficult for these algorithms to locate the right patterns within the data though. The way around this is to feed as large a quantity of unbiased information as you can into the software for A.I.-based investing and trading
- Organizing the Data – Ironically, artificial intelligence algorithms depend on similar approaches as people use in making trade selections. Once the machines gather up all of the relevant data, next comes the need to organize it and sort it out into appropriate groups. Two sets of data commonly appear – the training set and the test set. This enables testing data so that the algorithm can be optimally fine tuned before it is set up to start trading
- Setting Up the Trading Algorithm – the underlying principle to the algorithm is to enable a prediction on the price movement for the asset type that is being considered. Most means for constructing an algorithm involve first simplifying the problem at hand before applying a two class’s model relying on signal and predictability. Signal determines if a price decrease or increase is anticipated. Predictability showcases the confidence underlying such an indication. Once the algorithm goes through all of the data points and create an output, you are able to filter out the best performing opportunities from the generated list so that they can trade the ones that come with the greatest strength in signals
Once these processes have been completed, it is time to trade. The truth is that high performance algorithms win in around minimally 85 percent or higher of instances. Once the trader’s algorithm attains this percentage, he or she will be making a great deal of money. Up to that point, these individuals will likely stand to lose a considerable amount. This explains why most traders prefer to use a tailor made trading solution that has already been heavily back tested and successfully utilized by many investors to demonstrate great success.
Why A.I. Is Almost Necessary in Effective Financial Markets Trading Today
The reality today is that without artificial intelligence, you are at a severe disadvantage competing against the big and smart money in the financial markets. For four key reasons, A.I. has become almost a prerequisite for successful trading. We look at these next.
The Stock Market is Far More Complex than Before
Starting around the year 2000, financial markets around the world began to experience huge changes. They centered on regulation and technology. Because of this, markets grew more complex than ever before. A few of these complicated changes caused periodic glitches in stock market trading or led to outright shutdowns. These only seem to be happening more frequently in the last few years, as in the Flash Crash as one specific example.
Once there were just three primary stock exchanges on which investors could trade. It was this way for literally decades. Then thanks to rising computer power and resources coupled with the advent of the Internet, the landscape changed dramatically. Nowadays there are at least 50 private stock trading venues operating over more than 11 individual exchanges in just the United States. The NYSE may close every afternoon at 4 pm EST, but thanks to these many other exchanges, the markets are still open for business in after-hours trading. In particular, two different innovations have radically altered the markets’ reality, causing them to be more difficult to forecast and trade, dating back to year 2010. These are as follows:
- The Uptick Rule – was created intentionally to limit rapid sell-offs in markets. Investors had to first wait for an uptick trade before they were allowed to sell short an index or even an individual stock issue. The idea was that determined investors would find it much more difficult to push markets over the cliff so that they could personally enrich themselves at the expense of everyone else trading.
- Circuit Breakers – the clever halting mechanisms that stop trading for a few hours once they fall past a certain number of points or percentage decline. They put a stop to devastating rapid crashes in only a few minutes.
Nowadays Those A.I. Computer Algorithms Handle A Large Share of the Trading
Probably the greatest and most lasting change in markets over the past two decades has centered on the rise of automated trading that computers and their increasingly complex and capable algorithms now handle. Computer programs are now fully capable of organically developing formulas for scientifically trading in and out of stocks at supernatural speed that an individual can not hope to compete against. This has led to a massive rise in trading volumes accordingly.
Flash traders are people who deal in these algorithm trades. They operate large investment cabals that utilize high frequency trading to realize even minute moves in underlying stocks. They buy and sell enormous number of shares so that they can make money on these tiny moves. It creates greater market volatility and massively higher volumes of trades on the exchanges today.
Volatility In the Stock Markets is Higher Than Ever Before
Volatility has gripped markets since the coronavirus destroyed the world economy. It has not been this high in at least the decade since the end of the Global Financial Crisis of 2007 to 2009.
Short-term trading strategies of the Flash Traders are partly to blame for this. Their momentum trading and day trading endeavors are more and more often moving the markets. Exchange Traded Funds have also played their part in causing wild market swings as they can be highly leverage traded. These ETFs track the broader markets. Some of them will return 300 percent of the markets’ daily performance (either negative or positive). This has tended to multiply the severity of market moves and raised volatility to higher levels than ever before experienced by markets.
Short Term Trading Dominates Markets Nowadays
Technical trading has allowed for short -erm trading becoming more practical in recent decades. The time-frame needed to keep a stock has altered dramatically even for institutional traders and money managers who were long famous for longer term investing. Larger traders have to be consumed by the results of their quarterly trading today. They tend to not hold major investments that are underperforming even for a quarter any longer, which contributes to the volatility and volumes of shares changing hands. The increase in the amount of instant information available to smart money and even retail investors and traders is such that it only encourages these rapid trades in and out of underlying stocks.
The Rise of Retail Investors’ A.I.-Powered Trading Platforms
Thanks to the efforts of the companies that we will now look at next here, you are now able to similarly benefit from the technologically-driven trading propagated by the artificial intelligence algorithms. The high tech strategies that were formerly available only to the deep pocket traders with huge computer arrays can now be utilized by everyone who is willing to open a special account (as with RegalX) or subscribe to a monthly service (as with Tickeron). Incredibly, even beginners can make these work for their trading efforts. These trading strategy in the box services make it easy to dive into the deep end of the trading pool using smart trading algorithms and computer generated trading strategies that are rigorously back tested by your very own A.I. trading assistant. We look at five of the platforms that are taking the retail trading markets by storm next.
Day traders and technical analysts alike love this technological A.I.-driven solution TrendSpider. Simply put, it streamlines the trading process by automating the analysis through delivering what are known as “smart charts.” It includes a range of functions and features, such as:
- Automatic Fibonacci retracements
- Detection of automatic trend lines
- Auto generation of candlestick patterns
- Detection of supports, resistance, and breakouts as well as visual depictions of these
- Find and draw essential trend lines
So the smart artificial intelligence provides you with the conclusions that you need to trade. It finds and sends the most profitable options your way by finding them on the charts and utilizing your watch lists. Thanks to this, Trend Spider has rapidly become among the most heavily followed and utilized A.I. stock trading software available to the general public today. This fully customizable A.I.-powered engine allows you to become the most professional trader without having to possess the enormous bank account, bank of computers, or trading research staff that the family offices, hedge funds, and mega money managers can rely on.
Another artificial intelligence-powered robotic adviser that is also a powerful stock scanner for stock trading is called Trade Ideas. This particular program will also find opportunities and then back test them against reams of historical market events’ worth of data. Trade Ideas does this by utilizing several powerful algorithms that help it to track down potentially high profit trading trends while the markets are closed. This starts when the market close.
“Holly” is the name of this potent virtual A.I. assistant. She begins to analyze the day’s session and its impacts on the prior 60 consecutive trading days. Holly will then split up the various applied strategies in to an individual 35 concepts for varying purposes that will assist her in beating the markets. The smart algorithm considers a number of important factors like short and long position quantities, cheaper and dear instruments, technical, fundamental, and even social indicators, volume and volatility, and more. Holly is definitely research and analysis driven and focused.
This software is all the more powerful because it makes heavy use of what is called an event back testing protocol. This enables it to locate the prior signals that occurred in real market trading to learn how they worked in the past. The program also gives you great chart and alert windows besides complete functionality to assist you in having all of the necessary information right at your fingertips.
No surprise, Trade Ideas has quickly become widely respected and followed for its high performance algorithms that deliver real bankable results. The user dashboard is also easy to personalize and understand.
Blackboxstocks goes back all the way to year 2014. This company runs an A.I.-based stock screening solution which is algorithmically powered to remove the statistical noise from the day to day markets. The result is a proprietary real-time trading alerts. Blackboxstocks does much more than this. The company includes in depth scans on the options market or you can scan to check on dark-pool trades. Subscribers to this service also get special exclusive access to their private twitter group as well as a private channel where the owners post real-time stock and options alerts. It only follows large cap stocks, which makes it easy to replicate their trades in real-time.
Another potent A.I.-based stock trading program is EquBot. This actually takes the form of an exchange traded fund. U.C. Berkeley’s Haas School of Business began the program which has a noble goal of “giving everyone access to investment opportunities that artificial intelligence can uncover.”
This multiple stage technology looks to optimize investing via analysis that is based on both fundamental and quantitative in nature. It means that EquBot is not as much for speculators but rather is intended for longer-term investors.
Investors and institutions alike can take advantage of the artificial intelligence and data-powered platform called Kavout. This program utilizes its abilities to manage assets and create alpha through accomplishing more with less. With the Kavout catalog, investors receive all of the following:
- K Score
These catalogs also deliver G-Score and Profitability Trend. You are able to obtain the data history on literally thousands of individual stocks.
A.I. Powered Trading Services for Retail Investors Like You
There are also several companies that offer full package trading services through their artificial intelligence programs and platforms. The best known and rated of these are listed below:
Tickeron – a company that provides four different membership tiers from which you can choose. Their different services allow you to screen and analyze price movements, social media, and fundamental analysis on practically every stock. After it finds stocks that meet the criteria you set, you can trade them via your own third party stock platform or online brokerage.
RegalX – the brainchild of Regal Assets, RegalX is the first multi-asset platform that allows you to seamlessly trade in and out of everything from stock and ETF CFDs to commodity CFDs, to Forex pairs, to cryptocurrencies all in one account. It delivers aggregated news, research, and artificial intelligence-powered analysis on each of these various assets to help you trade like the smart money hedge funds and professional money managers do. RegalX does not charge any commissions on any of your asset trades.