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AI Stock Trading

17 May, 2022

AI Stock Trading

You might wonder how traders trust the power of AI or Artificial Intelligence. The possibilities of using AI for trading are endless. Traders use AI not only to predict price but also to enhance their portfolio and make the right decision for their stocks.

Know where is all began with the History of trading

What is AI trading?

AI trading is also referred to as algorithmic trading or automated trading which makes use of a computer program. Algorithms are created to follow a defined set of instructions to place a trade. Such AI based trades are known to generate good profits. The algorithm is based on timing, pricing and number of trades. This type of trading completely rules out human emotion and trades on the basis of needs and knowledge.

You do not need to be a high net-worth investor to use AI. Any trader can access AI trading software and utilize the magic of artificial intelligence in stock trading.

Why AI trading?

In the US, over 60% of trades exceeding $10M were executed using algorithms. The algorithmic trading market is expected to grow by $4 billion by 2024, bringing the total volume to $19 billion. Source

More and more people want to trade. While day time trading is increasing and profitable, it has become very time consuming as well. The job market today is taking up most of the time in people's lives leaving trading to fend for itself. Does this mean you cannot trade as much as you want to without investing your time? Here is where AI and High Frequency Algorithmic Trading comes in.

Trading bots are legal and most top trading platforms have no problems with traders using them. Many brokers today have more people using trading bots compared to manual traders. However, the nature of the trading world is such that finding legitimate trading bots to use is an arduous task.

Each bot is programmed differently. They are connected to trading platforms which release an API.

It's exactly the same as you buying and selling on the platform, but rather than pressing buttons, a bot executes for you.

How bots are taking over the online trading world?

In the past, the key tool in offline trading was the human brain. Today, with the help of machine learning, big data and natural language processing - AI has become a disruptive force in the trading world.

AI recalls the past, creates memories from patterns of trading and includes more data points efficiently, thus mimicking the trading activity portion of the human brain. The algorithm attempts to determine the preferred time of trade with the least repercussions on stock prices; making transaction decisions on behalf of humans when we are not available.


Pros & cons of AI trading systems.

Advantages of AI trading:

Minimize emotions:

AI will make and take decisions based on logic rather than emotions. This is specifically useful for those who tend to overtrade.

Possibility of backtesting:

Traders can test the algo on a historical set of data in order to avoid risk initially and be sure if this is how they want to go about trading.

Discipline:

Losses can be traumatizing for humans, but not for AI. Fear makes humans drift away from their plan of action and possibly make emotional decisions. Due to a recent loss a trader might decide to skip the next trade, but the algo won’t. AI allows traders to achieve the consistency that their trading needs.

Speed:

Getting in or out of a trade a few seconds earlier can make a big difference in the trade's outcome. AI doesn't waste any time by generating orders as soon as the trading criteria are met.

Diversifying trading:

Apply various strategies at the same time by letting AI scan for trading opportunities across the market.


Drawbacks of AI trading:

Technical failure:

AI trading may seem infallible but in reality it can succumb to a mechanical failure like the loss of internet connection may result in an order not being placed.

Monitoring:

AI systems need to be monitored to a certain degree due to potential failure like system quirks, power losses, etc. These issues can be resolved quickly if the system is monitored from time to time.

AI trading scams:

Remember, if the profits look too good to be true, it probably isn't true. Like for example when a system promises higher profits at a low price. The least you can do is scrutinize the system and do your research before paying. Always go for a free trial period as most scams won’t let you take a trial.

The success of AI trading also depends upon how good the program is. The best thing you can do is move one step at a time with a small amount of money. Create a demat and trading account with Sharepa Online Discount Broker and experience the world of trading at your fingertips.

Happy Trading!

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