Those who are involved in trading want to achieve maximum financial success, but as always, the used capital may be at risk. Factors include corporate takeovers, political events, or changes in the price of commodities such as oil. However, the impact has largely been ignored: distortions affecting trading decisions.
AI has no emotional bias
These are the consequences of emotional decisions – hence the psychological aspects of the market. For a long time, the impact of bias could not be adequately predicted. But artificial intelligence can now solve the puzzle.
In humans, feelings always play a role. Even a person who pays a lot of attention to facts will rely on his intuition when it comes to making financial decisions. Emotions play a big role. Therefore, it may be that individual, emotional decisions accumulate to a market trend. This can be observed, for example, when a psychologically important value such as an index is achieved.
However, traders do not notice this mechanism – most of them are of the opinion that they are focused solely on salary. Extreme price changes can lead to panic, leading to financial disaster. In such cases, the emotional level far influences factual thinking.
The disposition effect
One of the most common distortions is the disposition effect. The trader decides to sell stocks of steadily rising value, and stocks whose price falls are held until a new rise in value. However, both statistics and practical experience show that short stocks will continue to rise over the next six months. The same goes for stocks that fall — they don’t recover that quickly. Amateurs and professional traders are united by the desire for financial success.
Scholars looked at the impact of recent trading performance on the future trading decisions of professional traders on the Nasdaq. In case of losses, traders sought to compensate for the negative before the close of trading. Here it came to distortion because traders in the afternoon became much more aggressive in trading.
By no means, when we are talking about trading, should we omit Forex which is one of the most lucrative and largest fields in the world. When it comes to Forex trading, most professional traders use various trading platforms to increase their earnings. Generally, they are good tools and help a lot of traders. If we take ctrader compared to metatrader even there are some key differences that make traders choose one of them over another.
Artificial intelligence in trading
AI systems have been entering the financial markets for a long time. With increasingly complex structures, this is not possible otherwise. Algorithms are implemented in almost 90% of all transactions. High-frequency trading instruments are responsible for buying and selling financial instruments in the shortest possible time.
They recognize the best trading times in the future. In this context, many foundations are aware of the topic of real machine learning. One of the fathers of Siri, Babak Hodjat, developed a completely AI-based hedge fund, because it is incomprehensible to it, and not rely on data and facts, on human intuition. This AI is now also being used on mobile trading platforms that best support their users in their solutions.
These applications provide their users with all the important data by analyzing and controlling the behavior of trading operations. At the same time, they identify possible distortions that can affect the user in their trading decision based on the analysis. In this case, a message is displayed indicating that there is a danger of distortion. By implementing these notifications, the trader behaves in a way that prevents false trading decisions.
To prepare customers for trading and raise awareness of the high risk of trading, manufacturers offer AI-enabled solutions. For example, the launch of various fintech companies offers an online platform for trading the financial markets.
The platform implements functionality that analyses all behavior on the platform and notifies the trader when bias affects them. In addition, they offer educational materials aimed at educating traders about distortions. With one-to-one training combined with AI, the user becomes more experienced and does not have to make too quick or imprudent decisions.
Unlike humans with their natural intelligence, AI is completely fact-based. It collects large amounts of data and analyses it in real-time. This makes it ideal for trading use. But AI can also be immune to bias because it is human-made. Therefore, it is important to use controls that prevent this effect. IT trading programs have historically led to atypical moves in the stock market. However, when systems are resilient to these influences, there is no more efficient and effective approach.
Video – Artificial Intelligence
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