Will 2024 Be the Year of AI Investment and Trading Tools?
In the technology sector, two words summed up the year 2023 – artificial intelligence. The explosion in AI tech tools – ChatGPT, MidJourney, Google Bard & Gemini, AWS Bedrock, DALL-E, and many others – has promised a revolution that can perhaps exceed the impact of the internet. What has been most stunning, however, is not the number of new AI products and services but the rate at which they have improved and been adopted by businesses. For the latter, consider that 80% of Fortune 500 companies have adopted ChatGPT in some aspect of their business.
On a personal level, many of us have begun using AI tools for a variety of purposes, be it designing a blog or website or helping us do some research for an exam. The use cases are endless, of course, but one of the more interesting areas where AI is being touted as an indispensable tool is in trading and investing. There are products on the market that are already marketed toward that purpose, although we would recommend caution for now as many of them are untested, unreliable, and, indeed, some of these services are actually scams.
Nonetheless, there is an argument that the damn will burst with AI trading tools, sooner rather than later. There will always be some limitations, as we shall discuss below, but we see AI being an integral part of every trader’s armory.
Traders already embrace auto trading tools
The first and most important aspect to understand is that financial traders are usually ahead of the curve when it comes to embracing this technology. FinTech largely changed the game in this respect, and trading is no longer about watching a ticker and making a move. Today, even experienced traders will use auto trading tools like ZuluTrade and AvaSocial, as they allow them to mimic successful traders without needing to manually execute. Traders are constantly looking for an edge, though, and AI might give it to them.
Now, there are AI trading bots on the market, including Signal Stack, Trade Ideas, TrendSpider, and Dash 2 Trade. We will stop short of recommending any because we want to talk more about the future of trading. Yet, we can talk about what they do. They generally scan the markets for opportunities, using technical analysis and knowledge of historical data to pinpoint a trade. Some of them can automatically execute the trade for you.
But there are certainly limitations. For a start, some trading bots purport to use artificial intelligence when, in fact, they are algorithmic trading bots. There is a difference between these two concepts, even if they do overlap. Nevertheless, we can see evidence in live trading scenarios that some of their performance is poor. Again, we should stress that this is not always the case, and some of the bots we mentioned above have merits. But you should be careful when you are told that an AI bot offers some kind of panacea for all your trading woes.
Specialist bots will change the game
So, where, then, do we get the confidence that AI bots will be ubiquitous in online trading? If you look at the rhetoric coming from OpenAI (the company behind ChatGPT), it is clear that the next step is specialty AI bots. In fact, they have plans to open a type of app store for AI applications. What they will be releasing are called GPTs, effectively specialist versions of ChatGPT. They will be trained for specific purposes, such as teaching your kid math homework, answering customer emails for your business, and, yes, trading.
The not-so-secret ingredient for training a financial GPT or other speciality bot will be data, and that will mean getting access to live financial trading data. Historical data is arguably not enough, as financial markets behave differently over time, and there are new assets like cryptocurrency that have unique characteristics. Nonetheless, someone, somewhere, is going to develop a specialist bot that reaches a tipping point.
Yet, here’s the rub: No AI trading bot will ever be perfect. There has been much hysteria over artificial intelligence in the last year. And while it is a clearly powerful and disruptive technology, there are limitations on its ability to achieve the most human of qualities – reason. Some experts believe that AI will never get there. Sure, AI can analyze millions of data points and probably understand technical analysis better than the best trader, but that spark of intuition innate in all humans may forever be beyond reach.
And that, perhaps, is the key point. We are going to start seeing traders increasingly using AI tools to master the markets, but those tools will be used in tandem with the trader’s own skillset. It goes back to the oft-quoted mantra in the tech industry right now – “An AI won’t take your job, but someone using AI will.”.