The stock market also cannot remain untouched by Artificial Intelligence. Nowadays, many investors are using AI tools for investment, analysis, and calculations in the stock market. However, AI is still a relatively new technology, and many people have doubts about whether it is better to rely on AI or humans for stock market investments. In this article, we will consider the question of whether it is right to use AI (artificial intelligence) in stock trading or whether it is better to have the experience and understanding of human traders.
Importance of AI in Stock Trading
Artificial intelligence (AI) has completely changed the way of stock trading in the last few years. Trading systems or bots that use AI are used to make quick decisions, analyze data, and trade in the market. These systems are trained on the basis of large data sets and historical patterns, which try to identify future trends. The biggest strength of AI is its speed and data processing capability, which is many times more than that of humans.
Advantages of AI Trading
The following are the benefits of AI in stock trading:
Speed and efficiency:
AI takes seconds to analyze data and make decisions. It can respond immediately to market fluctuations, giving it an edge over human traders.
Data-based decisions
AI’s decisions are completely based on data and analysis, while human traders often make decisions based on emotions, fear, and greed, which may be wrong at times.
24/7 trading:
AI can work day and night without getting tired. It can trade in global markets at any time, while human traders need to sleep.
Algorithms and back testing:
AI systems provide a chance for continuous testing and optimization, which makes them more effective and stable. These systems can adapt to different market conditions.
Limitations of AI for Stock Trading:
Although AI has many advantages, it also has some important limitations. AI is based on data and historical patterns. Many cases are unpredictable, such as global events, political crises, or pandemics. AI is not able to understand these events correctly. Apart from this, the decision-making process of AI is sometimes like a black box, which makes it difficult to understand. What was the rationale behind a particular decision?
Importance of human trading
A human trader’s experience is far more complex and nuanced than AI. A human trader makes decisions based not only on data but also on their own understanding, experience, and market conditions. Here are some reasons why human traders are still so important.
Advantages of human trading
The following are the benefits of humans in stock trading:
A deeper understanding of the market
Human traders can understand the market’s mindset and behavior, which may be difficult for AI. For example, a human trader may find it easier to understand. What impact will a political event or social movement have on the market?
Adaptability
Markets are constantly changing, and human traders can adapt quickly to these changes. They not only rely on data but also make decisions based on current conditions. It is difficult to train AI for these changes.
Experience and insight
Sometimes, such a situation in the market can be understood only through experience. Human trainers can recognize an unseen opportunity or risk based on their years of experience, which can be a challenge for AI.
Good ethical and social responsibility
Some trading decisions are important from an ethical or social point of view. Such as socially responsible investing, where stock investors want to invest in companies responsible towards the environment, society, or governments. AI is not able to understand these social and ethical aspects.
Can AI be trusted?
AI can be considered an important tool in stock trading. But can it be considered completely reliable? The answer is no. AI systems depend on their data and coding, and if the data is wrong or biased, the results can also be wrong. Apart from this, AI systems can sometimes fail to deal with unexpected fluctuations in the market.
Hybrid Approach: Combination of AI and Humans
The best way is to take a hybrid approach that utilizes the advantages of both an AI trading platform and humans. AI can be used for data analysis, pattern recognition, and decision-making, while human traders can monitor these systems and make more nuanced decisions.
Many major hedge funds and financial institutions today use AI to combine the experience of human traders, allowing them to make smarter and better decisions.
Conclusion
Today, more than 70% of the stock and derivatives markets are already controlled by algorithmic trading. Big financial institutions invest huge amounts of R&D in these human-trained AI systems to such an advanced level that they are far superior to the free bots that the exchanges give you. Your exchange profits from these bots because it makes commissions by repeatedly making trades, whether you make a profit or a loss. Those who work for hedge funds use math and AI to make consistent profits. Those who believe that AI is yet to make an impact in trading are blind to the truth. Market data is noisy and constantly changing, but AI works on clean data. Algorithm and human trading have been a part of the market for years and will continue to be so.
