Artificial Intelligence has undoubtedly integrated itself at the crux of urban existence. It embodies the characteristics found in successful traders on Wall Street. After all, these models can replicate human cognition and excel at visual perception, speed recognition, and decision making, so are traders becoming obsolete?
Traders are not becoming obsolete even though AI is transforming trading with market mammoths investing in advanced algorithms. However, these algorithms can’t duplicate human intuition, without which all that remains is the unnecessary movement of stocks.
This article will discuss the impact of AI on trading and how it continues to threaten traders. The concerns about the uses of Artificial Intelligence in the current trading practices and the survival of global financial markets without the human touch have also been addressed. Furthermore, later in this article, we have discussed the future outcomes for traders to provide the complete picture.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Why Is AI Considered a Threat to Traders?
AI has gained prevalence in trading due to its accuracy for predicting behaviors and possible outcomes in any given situation. It has assisted many people in making smarter decisions about their investments without interaction with a trader. Since AI is a program that disregards human emotion, it can successfully make decisions without overthinking about the outcomes.
The trade depends on the exchange of shares, which requires a sound knowledge of the market and the ability to recognize the patterns of progress to predict behavior. AI is capable of both prerequisites and has become a hot commodity across all industries.
Primarily, the use of dynamic software for trading has been adapted due to its speed. The transition has attracted much attention in the financial industry and has led to the revolution of automated trading. It is now creating a pathway for the sector to bask in the glory of its multimillion-dollar paradise.
Machine Learning and AI in Trading
Currently, financial traders have developed a preference to use complex software solutions to interact with the markets. With machine learning, algorithms can study and mimic human behavior at much higher speed and more accurately. This results in Artificial Intelligence, which is superior to human intelligence in certain areas.
For the sake of fairness, this also evokes the question of where the line must be drawn between the interference of AI in trading. But currently, there aren’t any strict regulations against its usage. The software solutions rose to prominence as they increased the facilitation for traders. It must be noted that the AI has made a space for itself in the trading spheres, and it shows no signs of stoppage.
AI has stood its ground in the typically conservative market because it embodies all the characteristics of a successful financial trader. Any experienced trader takes pride in recognizing patterns and the influence of socio-cultural elements achieved through experience.
One can train AI to recognize patterns, but it remains ineffective due to the lack of subjectivity. An artificial creation cannot be expected to replicate the human touch that helps in decision making after a comprehensive analysis of global events and their social outcomes.
The catch here is that AI is accessible for corporations that are operating on a large scale. AI is expected to stay isolated from independent brokers due to the sheer costs of establishing the system.
The Stock Market Relies More Heavily on the Human Element – Can It Survive Without the Human Touch?
To understand AI’s functionality in financial trading, let’s illustrate the case with an example of GPS. GPS directs everyone to the same routes when driving on the same roads. This leads to traffic jams that could have been avoided if human intelligence had been applied in the first place.
Similarly, AI is manually coded with specified responses on market data points. When an entire operation is based on similar coding, it is evident that the trade will be restricted to similar products and industries, eventually missing out on the better opportunities that are usually visible to the intuitive trader who depends on oxygen instead of electricity.
Despite being super smart, AI has the potential to simplify the operations of the stock market, which could wreak havoc in the positioning of stocks. Even though AI is faster than the average human brain, it cannot recognize the human touch required to keep things under control in a market as volatile as stocks.
AI’s Intelligence Is Limited
AI utilizes algorithms that study data to develop their predictive abilities. The quality of the datasets initially provided to the algorithm directly impacts how it is expected to operate. Historical records do not reflect the biases involved in the price movements across the board.
The significance of understanding irrational behavior and sentiments is often lost on the developers of artificially intelligent instruments, which leads to the expectation of history repeating itself on a loop. Replication of a previous trend is not possible in the impulsive background of financial markets that continue to evolve.
AI Needs Humans, and Humans Need AI
AI is gradually learning the skills to eradicate jobs. The world is on the verge of a seismic shift in the global economy dynamics where only the fittest would survive. As AI continues to grow, it will keep devouring low-skilled labor and manual skills of financial trading.
There Is No Code for Programming Human Intuition
Artificially intelligent devices are used in the financial market due to their ability to process data and generate outputs rapidly. But financial trading is not limited to these skills. Comprehensive interpretation of information to reach rational decisions is an ability that is innate to human beings.
AI is highly capable of predicting outcomes, but it critically lacks the intuition required to make spontaneous decisions that defy the past trends. AI operates on the assumption that stable patterns will continue to repeat themselves. The experienced traders have mastered the art of recognizing the chaos in complex financial markets to contextualize the plan of action required for navigating out of a crisis.
Future Outcomes for the Trader Community
With the prevalence of AI-assisted trading in the financial market, every major stakeholder would be forced to invest in intelligent models to keep up with fierce competition. Employment trends in the industry will shift towards tech-savvy individuals.
Only those traders who are not intimidated by this technology’s intelligence will survive the rise of AI. Like retail banking, automation is expected to take over most of the work that requires a low skill set. The industry will need more programmers as the days go by. The digital revolution is expected to take over the financial markets to transform the market in its entirety.
AI’s takeover of financial trading will allow professionals with financial skills and education to navigate other fields. They can use their expertise and experience in areas like healthcare or perhaps entertainment too.
Fundamental vs. Technical Investing
While AI is going to outperform humans in technical investing (thanks to its amazing processing capacity), humans will maintain their edge in fundamentals. As a result, even the most fast-paced day traders have to shift towards the fundamentals and create hybrid strategies that leverage number-crunching and investigations of underlying value in businesses.
This may be a little daunting because traders prefer a more formulaic approach, which is hard to derive in a hybrid strategy. But it is a must for traders who wish not to be replaced by AI or AI-programmers.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
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- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
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Conclusion
Financial trading is a dynamic market that never stays static like a board of chess. The complexities of the trade cannot be programmed into a model for AI to absorb and predict due to its inability to be spontaneous in decision-making.
Despite the existence of super-algorithms that can process data at the speed of light, human consciousness’s unpredictability cannot be coded in binary terms. While AI continues to spread its wings in the financial market to reduce the number of traders, it can never win against the intuition and experience of the wolves of Wall Street.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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