DEV Community


How Algorithms and AI Are Changing the Way Traders Make Decisions

ionorah14 profile image Laura O. Tolentino ・3 min read

Trading programs have been used on Wall Street for years. It is not uncommon for investment firms and traders to develop proprietary algorithms to help them collect and process market data and make better trading decisions. In recent years, however, algorithms have been reshaping how traders make decisions.

The simple reason behind that shift is artificial intelligence. Algorithms are great, but the introduction of artificial intelligence and subsets of AI like big data analysis and machine learning makes integrating algorithms a necessity rather than an option. Algorithms and AI are changing the way traders make decisions in many ways.

Automated Trades

Automation is the first of those changes. Yes, traders still open new positions manually, but algorithms often handle the actions taken once new positions are opened. The most basic version of such algorithm is the trailing stop feature found in many trading platforms.

Trailing stops allow open positions to remain open as long as the market is moving towards the right direction. The Stop Loss for those open positions are automatically moved depending on the way the market moves, giving traders the ability to maximize their profits while limiting their risks.

Today, algorithms can do so much more than that. You can have algorithms handling complex transactions and pushing automation to a whole new level. You can even program algorithms that get triggered by events in different markets or instruments.

The Introduction of AI

We really cannot talk about artificial intelligence in trading without talking about big data and big data analysis. AI has really expanded a trader’s ability to process data. In fact, data warehouses are becoming more common as an asset for traders across the market.

AI processes data in a different way. Instead of going through news and market data manually, AI looks for patterns and recognizes the relevant data from the noise. Thanks to the massive computing power we now have access to, AI can also process vast amount of data quickly.

Rather than reviewing data manually, traders can now jump straight to insights and conclusions with the help of AI. It is up to the AI to perform the preliminary analysis, find patterns, recognize market trends, and generate key insights for traders to use.

A Fast-Paced Trading Environment

Algorithms and AI certainly make the market more exciting. Traders now have the ability to anticipate market movements and make trades faster and more accurately. The insights generated by AI are not only useful for identifying market trends, but also sharp enough to use as signals to open new positions.

Here’s the good news: AI for trading isn’t just the domain of large financial firms and big traders. Traders with different portfolio sizes can take advantage of artificial intelligence trading signals just as easily with the help of service providers specializing in artificial intelligence.

With AI powering your adventure in the financial markets, it is easier to make good trading decisions. On top of that, you can make those decisions with more data and at a faster pace. This is how algorithms and AI are changing the way you and other traders make decisions.

Discussion (0)

Forem Open with the Forem app