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Artificial Intelligence (AI), including AI trading signals, is making a big difference in the online world. In this article we take a closer look at potential benefits of using AI trading signals. We also analyze some major differences between trading strategies executed manually vs with artificial intelligence software designed for financial markets trading.
"Whether you like it or not, radical transparency and algorithmic decision-making is coming at you fast, and it's going to change your life."
That's how Bridgewater Associates founder Ray Dalio, currently with assets under management estimated at 160 billion dollars, opened his TED Talk.
In this article we will cover the 7 Ways AI Trading Signals can improve your trading results:
1. AI Can Help With Strategy Diversification.
2. Achieve More Consistent Results With AI Trading Signals.
3. Trading AI is constantly scanning the market.
4. Narrowing the Gap Between Retail and Professional Traders.
5. Timing is Key.
6. You Can Avoid Imperfect Trade Setups With AI Trading Indicators.
7. Develop a Data Driven Mindset Using AI Trading Signals.
The Impact of AI Trading Signals
AI has impacted the evolution of every single industry including trading the financial markets. By using AI Trading Signals, traders can be provided with data driven analysis. With AI, traders are guided to make informed decisions based on financial models and statistical analysis of historical price data. This information is supported by, and gathered from, traditional algorithmic trading pattern recognition.
A Little History on Data-Driven Analysis in Trading
Quantitative trading strategies were first adopted in the mid 1980’s by institutional traders at hedge funds as forecasting tools. Traders would then incorporate market fundamentals and technical analysis with price movements to identify high probability trading opportunities. This would help eliminate the human emotion factor from the decision-making process and supply traders with a logical approach to trading.
Advancements in AI Trading Signals
Statistics show that at least 60 to 75 percent of trading on Wall Street is automated and preprogramed to align variables such as price momentum and volatility. This is done with trading signals that define the range and direction an instrument is likely to follow during a specific period. This is designed to take advantage of systematic patterns and repetitive moves.
Technological advancements in the AI industry are making it easier to crunch data and validate interpretations for trading executions. The AI industry is continuously growing and expanding for retail traders. Previously it was restricted for use by only large players who deploy AI for accurate and careful management of their large capitals of AUM (Assets Under Management).
Whether you are a short-term trader or a long-term position holder, AI tools can be valuable for tirelessly scanning many markets. Within seconds they compute big data sets. This is time consuming and subject to human error when performed manually.
7 Ways AI Trading Signals Help Improve Trading Results
1. AI Can Help With Strategy Diversification
During one of his speeches, former Goldman Sachs trader Anthon Kriel explains how traders cannot expect to make consistent profits on the long run using only one strategy in one time frame. This is simply because market conditions are not the same for the entire year. They are subject to change due to economic events. This requires traders to adapt by using different strategies to achieve success.
Diversification comes in many forms. You can mix up short-term trading opportunities with longer-term positions; and use different types of asset classes including Currency pairs, commodities, and stock indices. You can also build a set of positions split between long and short trades for better risk management. This way you avoid taking on multiple highly correlated symbols at the same time.
AI trading signals can help you be aware of opportunities on different chart time frames. You can cover more strategies and allocate risk between multiple models. Every strategy has its winning periods and losing periods. Achieving correct risk balance can help you overcome any specific trades that are under performing.
2. Achieve More Consistent Results With AI Trading Signals
Consistency is what defines good traders from great traders. Accomplished traders distinguish themselves from others by using their trading edge. They achieve constant profitability over long periods of time and avoid handing back their hard-earned profits to the market when their strategy is not performing as expected.
Changing economic conditions define the phases in which certain trading strategies are more likely to succeed. A trader with a single-strategy mindset will likely stay on the side lines until the time is right to use the trading edge at their disposal.
The exact time for shifting between strategies can be tricky to determine. Careful examination of market analysis both from a fundamental and technical perspective requires a certain amount of experience. Advanced traders accumulate such experience over the years and incorporate these principles into a software code to integrate machine learning with human knowledge.
3. Trading AI is Constantly Scanning The Market
It can be a time demanding task for traders to have multiple charts open all day long and overlook every single candle movement in multiple instruments. Traders may overthink decisions, lose discipline and be emotionally tempted to enter positions outside their plan.
Advanced traders use algorithms that capture the essence of their trading logic and let the machines do in a matter of seconds, what may otherwise take hours for humans. This is exactly the kind of task where a machine can be superior to a human being.
The use of AI trading signals allows the human brain to be less distracted by repetitive manual work. With AI you can focus on the bigger picture of managing your trades. With AI you can also assess the risk management which can vary from less risk averse to a riskier approach. This can depend on your mindset, desired outcome, and trading vision.
Different types of indicators include oscillators, divergence, volume, price levels and momentum with many options for each category. It's not about the right indicator; whether it's MACD (Moving Average Convergence/Divergence) or RSI (Relative Strength Index) or other indicators that manual trading relies on.
There are at least forty other indicators and market sentiments out there for each specific instrument; however, it is not humanly possible to access them all at once to filter and identify different trading opportunities.
4. Narrowing the Gap Between Retail and Professional Traders
The quality of your analysis defines the quality of your trading results. By going in the direction of big players you have the possibility of eventually achieving a big win every now and then.
Having the correct tools is crucial to improving a trader’s analytical framework. This is an advantage which previously only institutional traders had through their financial firms who spend millions of dollars on software research.
This is an advantage which previously only institutional traders had through their financial firms who spend millions of dollars on software research. In essence they do this to keep upgrading and optimizing their market approach as well as have instant access to news terminals at the palm of their hands. This can lead to institutional traders having a slight edge over a retail trader’s approach. As previously mentioned, retail traders can often be restricted to the limitations of basic information and moderate understanding of the factors driving the markets.
Algorithms are used in trading to understand different types of trading patterns. Artificial Intelligence helps traders turn the analyzed numbers into a conclusion that can be used to make decisions in the market.
5. Timing is Key
Volatility can make it hard to trade. You might miss the perfect opportunity if you don't act quickly. But if you act too quickly, you might not get the best price.
This is another area where AI is much better than humans. AI can identify the ideal price range and automatically place trades only when markets fluctuate to reach the desired price.
If an entry signal triggers due to a breakout of a certain price range, algorithms can determine whether a price is within the stable entry range or has moved too quickly due to sudden big price moves.
6. Avoiding Imperfect Trade Setups
Knowing when to trade is a good skill but also knowing when NOT to trade can be as important. Avoid taking on less optimal setups and preserve capital for the more efficient opportunities. This is a crucial factor for the success of a trading strategy and in the long run has a huge impact on your win percentage.
Back-tested strategies are easier to identify when momentum and price movement conditions go as expected. On the other hand, receiving notifications when conditions don’t go as expected can help you reduce significant losses and keep you from taking such trades in the future.
7. Develop a Data Driven Mindset Using AI Trading Signals
When you have a lot of data, you can look at lots of markets and see what is happening. With regular trading, people only look at a few things to decide if they want to trade. But with algorithms, we can look at numbers to make decisions without these restrictions.
When more than one technical indicator points to the same trade, it becomes more likely that that trade will be successful. You can use momentum factors to take advantage of expected volatility by focusing on actively trending markets rather than sideways stationary markets.
Instead of traders analyzing a trend direction by eyesight, AI trading signals use data to create scatter plots of market prices. They then determine the slope in which an instrument is trading on a short or long time frame. This can be either aligned or opposite. There is a higher probability of profits when a market’s short-term direction and long-term direction are aligned. Such small details can make a big difference on the potential returns of a strategy.
Conclusion
Improving and getting better is a cycle every trader on any level must go through. Strategy improvement and optimization are long processes; often influenced by the availability of new tools and improved trading platforms. This allows traders to make better decisions.
The Artificial Intelligence global market is expected to grow from 387 billion USD in 2022 to 1.4 trillion US dollars by 2029. With more mass adoption come better opportunities for technology to have an even bigger impact on the way the world works.
AI trading signals can definitely help traders validate their decisions before entering trades. They can help provide coverage and awareness for other opportunities that might arise in all asset classes as well as offer an alternative option alongside their current manual setups. This can improve their overall risk management structure across multiple models.
