How AI and ML are Changing Traditional Trading

By CIOReview | Wednesday, January 30, 2019

The presence of Artificial Intelligence (AI) and Machine Learning (ML) in today's word cannot be neglected. Like any other industry, these technologies are going to be a core aspect of trading. The use of AI and ML can easily replace human labor with labor performed by machines. The impact of human emotions on trading decisions hinders the performance but implementing algorithms and computers can execute faster trading. The varieties of algorithmic trading include

• Trade execution algorithm used to execute large orders which size down trades into small orders to minimize the impact on stock price. Volume Weighted Average Price strategy is an instance for this.

• Strategy implementation algorithms make the trade based on signals from real-time market data. An example is trend-based strategies.

• Stealth/gaming algorithms can detect and take advantage of price movements large trades or other algorithmic strategies.

To have a competitive advantage and increased profit traders need a new tool and that is ML. It involves feeding an algorithm data samples derived from historical prices. The data samples consist of variables called predictors and target variable, the expected outcome. ML offers a varied number of advantages over traditional algorithmic programs. The process can accelerate the search for the most efficient algorithmic trading strategy by automating the manual process. It also increases the number of markets an individual can monitor and respond to, which in turn increases opportunities.

AI also is impacting algorithmic trading with a combination of machine learning and deep learning. AL algorithms transfer a set of actions to identify figures in real-time business data to identify business opportunities. With the advanced technologies developing trading algorithms and putting them in practice have become a much quicker process. The benefits of AL and ML in trading can be listed as

• Automation helps to accelerate algorithms for trading strategies

• It helps monitor and analyze the market and allows quick response

• Help identify trends based on historical information

• Increases business opportunities

AI and ML have become crucial in the future if trading with the above applications.