Stock trading appears complex to newbies. Yet to experts, it is a well-organized system with discernible patterns. Everyone wants to jump into the market and make money, but can you succeed without a ton of resources and workforce to master the daily intricacies of stock analysis and trading?
Fortunately, this goal is becoming a reality with Artificial Intelligence (AI) trading software. You can leverage this cutting-edge technology for trend analytics, risk mitigation, stock analysis, and trade execution.
What Is AI Stock Trading
As the name implies, AI trading software uses artificial intelligence to generate and execute a trading strategy for stock investing.
For years, brokerage firms have used machine learning and algorithmic forecasts to help online brokers and stock traders lower risks, buy or sell shares, trade options, and diversify portfolios.
The technology and modeling used to be quite expensive. However, online AI-based trading solutions make the technology much cheaper and more readily available.
As a result, AI is becoming a widely used tool for stock market trading.
How Does AI Stock Trading Work?
1. Analysis and Prediction
AI trading tools gather and analyze millions of data points from users and the markets to generate advanced stock and option trading scenarios. Besides technical analysis, AI can also use market sentiment data, analyst ratings, trending news, earnings reports, etc., to provide investment advice and recommendations.
AI can help you save time and reduce costs by enabling rapid judgments and actions, which are crucial in stock trading, where every second counts. These models can be used to invest at optimal stock prices, minimize risk, and balance diversified portfolios as market conditions demand.
3. Closed Loop Learning
Trading techniques based on AI become more sophisticated as computer models gain knowledge and context from previous results. As a result, AI now provides undeniable advantages over manually picking investment choices.
Pros of AI Stock Trading
The use of AI trading solutions has several advantages that make them both a wise counsel for novice traders and a very potent tool for seasoned investors.
1. AI Lacks Emotion
Artificial intelligence removes performance declines brought by inherent biases, impulses, and human mistakes. AI's lack of emotion may be a drawback in other endeavors, but it is a huge advantage in stock trading.
2. AI Requires Less Time for Research
Consider how many hours you spend each day researching to trade stocks and options.
AI trading software plugs into essential data sources, which compile the data points and research required to make informed decisions.
3. Lower Costs
As a result of higher productivity and automation of AI stock trading systems, traders require less workforce and computational resources.
Even though there are subscription costs for AI trading software, AI reduces the overall costs by lowering the time it takes to conduct analysis, compare data and formulate an executable strategy.
4. Quickly Create Reports and Practical Charts
By quickly producing customizable reports and graphs, AI helps reduce the amount of manual work to be done by the trader. It can rapidly create information on demand, show it on screens, and continuously update it.
5. AI Keeps Improving
New and more potent Neural Processing Units get frequently released due to the advancement of AI technology. The AI algorithms in online trading systems constantly learn and enhance their precision.
Stock trading with AI does not require ongoing human supervision or coordination. That is because AI systems can carry out different sets of operations automatically.
As a result, whether you're a novice or an expert stock trader, you can use AI to buy and sell stocks by monitoring stock pricing, setting screeners, and executing limit orders.
The Drawbacks of Stock Trading Using AI
AI trading software could be more flawless and perfect. Like a double-edged sword, AI has its benefits and a few cons. Here are some of them.
1. Monitoring Is Required
AI trading software executes all its functions based on pre-programmed code. Poor quality code, unexpected scenarios, and other variables can cause errors.
As an extreme example, Knight Capital lost about $440 million due to a glitch in trading software that bought and sold millions of shares for 45 minutes without triggering a stop-loss. In this scenario, a human trader would've pulled the plug quickly. Since the software's code did not include a kill switch, no one at Knight Capital could shut it down for 45 minutes.
It is critical to ensure that AI trading systems are monitored properly, as they are not foolproof. Humans are still required to address anomalies quickly.
2. Simulated Data
AI stock trading relies on testing strategies based on past performance and historical data applied to simulated market conditions.
If traders set it and forget it without paying attention to economic conditions and breaking news, AI-based trades can result in losses.
In the real world, it may be necessary to formulate out-of-the-box trading strategies based on the context only humans can understand.
3. Higher Cost for Custom Solutions
AI trading software provides standardized data, analysis, and recommendations to all users. Most online traders or brokers rely on custom strategies based on their experiences. Including these in AI models to gain a competitive advantage could be very expensive.
Large firms may consider this option, but for individual trading, it is best to look for AI trading platforms that support some level of custom inputs to adapt the system to your strategies.
The Best AI Trading Platforms
Here are some widely used AI trading platforms to help you get started.
Established in 2003, Trade Ideas caters to investors, traders, and market professionals of all expertise levels.
Trade Ideas continuously scans the market to identify the most profitable daily opportunities based on a million different trading scenarios. The real-time scanner selects securities from the thousands of equities available on North American stock exchanges, including the NYSE and Nasdaq.
You can also build your custom scanning parameters, identify opportunities, run simulated trades and backtest against recent historical data. The software provides up-to-date news, breakout alerts, and custom charting capabilities.
Another notable feature is the innovative ‘stock racer' tool. Stock racer lets you create custom filters and select a list of various stocks to ‘race.' For example, you can race five stocks to see which one experiences the most significant stock-price change in the next 15 minutes.
The software visualizes the race over your selected duration, applying various performance metrics along the way. At the end of the race, you can see the winning stocks and trade them directly by connecting to your Etrade online brokerage account. It's a fun and engaging way to compare stocks.
Tickeron offers a wide range of AI-driven services to investors, including day-trading, swing-trading, and crypto trading.
It uses AI to spot patterns to help traders make better decisions for trading options, securities, exchange-traded funds (ETFs), mutual funds, crypto, forex, etc.
The pricing structure is a bit complicated, as you can select just the features that work best for you. For example, you can choose AI robots that analyze crypto, forex, and stock markets to find the best opportunities. Alternatively, you can select the trend analysis tool to see trends and form your strategy.
The best feature of Tickeron is the marketplace. You can exchange watchlists, simulated trades, and model portfolios with other users if you want to learn how to trade.
You can also apply screeners and mimic AI-powered model portfolios to maximize profits.
This online stock trading platform includes AI technologies allowing traders to buy or sell stock options. Market scanners, volatility indicators, proprietary algorithms, and real-time quotations, among other tools, expedite trading and improve decision-making, giving platform users a competitive edge.
Additionally, BlackBox provides all subscribers with free lectures for beginners on investment strategy, tax advice, and live webinars to start investing.
Frequently Asked Questions
Is AI Stock Trading Legal
Both algorithmic trading and AI trading are legitimate.
Because these technologies make the work of trading stocks safer and more straightforward, algorithms and automation are becoming irreplaceable to digital trading.
Is AI Trading The Same as Algorithmic Trading?
AI trading and algorithmic (or “algo”) trading are different.
Algo trading applies particular trading rules to a computer program that executes stock trading on the user's behalf. The programmer, not AI, sets the rules and frequently reflects the trader's perception.
As opposed to algorithmic trading, AI systems use machine learning and analysis of complicated market conditions. That is to forecast market volatility more accurately and make trading decisions.
The Future of Trading
AI shows no signs of slowing down.
Using AI for stock trading has its pros and cons, but combined with human intuition and monitoring, it can be hugely beneficial. It's clear that as AI models get better, they will form the backbone of formulating successful investing strategies in the years to come.
This article was produced by Wealth of Geeks.
Ash & Pri are the Founders of AshandPri.com where they empower others to make smart money decisions across all aspects of life. They achieved financial freedom in their 30's and have traveled to over 30 countries, thanks to a disciplined approach to money management. Both hold an MBA degree and have 13+ years of experience in financial services, consulting, and telecommunications.