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| 1 minute read

AI Bots for Trading Stocks

Faster than you can say "ChatGPT," companies started rolling out software robots ("bots") allegedly powered by generative artificial intelligence (AI) to bring you faster and more accurate stock trading. This article describes TEN, yes 10, different AI bots for trading stocks.

Most of these AI bots boast that they pull gobs and gobs of information about a company and synthesize the information faster than any human can. Yes, AI can process large amounts of data faster than humans. Yes, AI can identify patterns and trends that are not immediately apparent to humans. Yes, AI can automate tasks and scale up to handle huge amounts of data. HOWEVER, the complexity of AI that gives it an advantage can also make it difficult to track performance and identify problems. Also, AI software is new and untested and could result in unforeseen consequences. Finally, who is to say your AI bot is better than the bots at the most well-funded traders in the world?

In evaluating these tools, I recommend three key factors:

  • Transparency: It is important to ensure that AI algorithms are transparent and that you understand how they work. This will help to mitigate the risk of making mistakes.
  • Risk management: You should use risk management techniques when using AI algorithms. This will help to protect capital in the event of losses.
  • Continuous learning: AI algorithms should be continuously learning and improving. This will help to ensure that they are able to adapt to changes in the market.

I suggest avoiding any "black box" AI bots that promise great returns without saying how the bot works. Look for companies that back up their AI technology with detailed explanations of the processes they use. Perhaps the AI is based on academic research or protected by a patent. Next, I suggest setting in place guardrails against "run away" trading strategies, especially shorting. Finally, look for legitimate track records of past success. There will be many AI trading companies that start and fail during this new technological renaissance.  

One of the main ways AI is changing the stock trading world is by introducing bots to it. These machines make decisions faster and with far fewer errors, meaning they lead to more profitability.