AI trading: how it affects the stock market

Recently, artificial intelligence has become an integral part of crypto trading. The role of AI in global trading has already reached $18.2 billion in 2023, and is expected to grow to $50.4 billion in just 10 years!

AI trading is the process of using AI technologies such as machine learning (ML), deep learning (DL) and natural language processing to examine lots of complex information, make detailed trading analysis and process trades automatically. But is it just a trend or using them in your day-to-day trading is obligatory now?

The thing is, you can always analyse all the data based on your own experience. However, the human mind will never be able to comprehend the millions of images, graphs, numbers, news, events, analytical articles, financial markets and historical data and much more that can be taken into account when trying to build your perfect trading strategy.

That's why AI trading can become your perfect partner, doing all the dirty work and analysing all the information right from scratch. Thus, you can spend more time developing a brand new marketing strategy or rebalancing your portfolio.

The Power of Accuracy with AI trading. How It Works

AI trading tools safeguard you from all the unexpected ups and downs that can happen in the market, including unexpected price changes, economic and political news and disasters. It analyses all the data 24/7 and makes sure you don't miss any important news. It can rebalance your portfolio while you sleep, turn new data into useful information and deliver it to you when you wake up, and do lots of other useful things. But let's start at the beginning.

Collecting data

This is the first, and most important, step an AI trading tool takes to create a strong and meaningful prediction. AI trading tools collects all the market data we've mentioned above, as well as social media sentiment and search metrics. Only complex data can be useful for productive and working trading ideas.

Selection

AI trading system analyses all the information and extracts the most important, leaving behind the irrelevant noise. The selected data is then analysed a second time, to ensure that the predicted market movement is worthwhile.

Machine learning

Once all the data has been collected, analysed and sorted, it's time for training. It's here that data scientists and IT experts step onto the stage and choose appropriate AI mechanisms.

ML algorithms are trained on historical data to better understand tendencies and correlations between different data. This tool is necessary for predicting price movements and identifying profitable trading opportunities.

Trained ML tools is useful in analyzing real-time data to generate buy or sell signals for stock traders. If the system is trained well enough, it can process trends instantly and become very sensitive to the slightest changes in the market. AI-powered trading platforms are usually equipped with pre-defined stop-loss and take-profit levels to minimise any risks.

Types of Machine Learning

Supervised learning

This ML trains the system based on known outcomes.

Unsupervised learning

This type of machine learning finds patterns and makes predictions based on unpredictable outcomes.

Reinforcement learning

This ML literally allows the system to learn from its mistakes. Feedback is the main guarantee of system improvement.

However, machine learning works better with deep learning, which copies the structure of the human brain and mimics its behaviour, revealing some hidden patterns and connections that traditional ML can't see.

DL is perfect for:

Portfolio management

Deep learning can help with risk strategies, stock selection, predicting global price movements (especially on the stock market) and rebalancing your portfolio as a result, and much more.

Social media analysis

DL can track some of the key market trends that are most vibrant on social media, make sure you keep an eye on some of the key market influencers, track and analyse audience sentiment, provide audience insights, predict how all of the above can affect the price of an asset.

News and event sentiment analysis

DL can sift through tens of thousands of events, reports, announcements, press releases, reviews, newspaper and online media headlines and analyse the sentiment of it all. Sentiment analysis is a litmus test for the coming hype, which AI tools are very good at detecting. Moreover, hype is a signal of price change, which is crucial for any trader.

Market time series

Deep learning algorithms can also detect some repeating patterns by examining sequences of data points collected at consistent time intervals. It is helpful in predicting price movements, trading volumes, pumps and dumps and much more.

How AI Trading Technology Is Transforming the Stock Market

AI trading can be very helpful for traders and brokers, allowing them to analyse many factors, including exposure gaps, possible volatility, speedy ways for trades execution, best investment opportunities. It's preferable in sorting out all the market patterns and create the best strategy for your portfolio, taking into account all the specifics and risks you need to be aware of.

Practical trading with AI

Thanks to AI trading, numerous ML and DL models, many new trading types and methods have been created or improved, including

• Algorithmic trading. This means that equity investors use algorithms to process historical data. These are more traditional tools that apply ML and DL to analyse all market data.
• High frequency trading (HFT). Imagine that you need to buy or sell large amounts of shares immediately. That's when high-frequency trading comes in handy. However, this type of AI trading system requires better skills and equipment, and you'll need a powerful computer to process multiple market data and make a large number of trades at once.
• Robo-advisors. These personal assistants, which can rebalance your portfolio when something significant happens on the stock market like volatility, make high-level recommendations based on many factors, including your risk tolerance, preferred trading methods and investment amounts.
• Arbitrage trading. This involves buying an asset in one market and selling it at a more favourable price in another. AI trading bots and other tools can track multiple markets at the same time, so it's pretty obvious that they can spot an opportunity much faster than you can.

Examples of innovative AI-based tools for financial analysis and investment predictions

Most successful AI trading bots

To date, hundreds of AI trading bots have been created. They've become an essential part of any trading process on numerous financial markets. They can handle multiple transactions and trades at the same time, 24/7, so consider them your perfect assistant. However, some of them really stand out thanks to a unique combination of qualities, high level of usefulness, risk management qualities and effectiveness.

The key is to take your goals and trading strategies into account. Here are some of the most productive AI trading bots to date.

Cryptohopper

This AI trading bot allowsyou to combine multiple strategies and automate them at the same time! Cryptohopper analyses stock prices, market trends and conditions very quickly to make the right decision about your strategy and stock trading. It also adapts to changing trends by ranking and backtesting different strategies. It constantly optimises the performance of all open trades in your account. It is similar to a hedge fund, but better, as this AI trading bot has multiple strategies up its sleeve. You can also customise the behaviour of the bot by setting your preferences.

WunderTrading

This bot uses advanced algorithms and is equipped with complex analysis to track down all the trading opportunities you are missing and take into account any market volatility. It constantly analyses crypto pairs for price convergence and divergence.

It features a variety of unique strategies for stock trading including statistical arbitrage, mean reversion and spread normalisation to optimise trades. With WunderTrading you can use Take Profit, Stop Loss and Trailing Stops for risk management. Thanks to ML and DL, this bot is super adaptable to market changes. The setup process is easy even for beginners, making it super user-friendly for everyone.

Kryll

So far, Kryll is more progressive that simple AI trading bots. It has grown into a Web3 platform with AI trading bots for cryptocurrency management.

Kryll's specialists make extensive use of machine learning to provide clients with personalised trading data, advice and strategies. It focuses on both maximising profits and minimising risks at the same time, analysing on-chain data, market trends and asset performance.

Before choosing the right bot, make sure you consider your strategy, the number of services it offers, the exchanges it supports, fees, customer support and, most importantly, the level of security. DYOR before making a decision.

Is AI trading technology legal?

As AI trading is a new trend in this area, there is currently no strict regulation. As this emerging technology becomes more promising, it may become more regulated.

It is important to note that the AI algorithms that power robo-advisors and various trading systems may be copyrighted. As such, startups can take into account that they have the rights to use any third-party AI that they implement in their product.

That's why it's important to learn all the data you can before using an AI-powered tool for stock trading and other processes.

Conclusion

AI trading is definitely a breath of fresh air in the stock trading industry, making the process of creating trading strategy more accurate and secure. It brings a lot of interesting insights that you might miss out on, as there is no way to analyse all the data at once.

Moreover, this technology is just at the dawn of its development, and its part in trading will soon become even more significant. Technologies are unstoppable, and soon the trading market may see new bright breakthroughs showcasing new opportunities.

AI trading strategy makes the process more interesting for the participants of the system as they no longer need to spend time on some dirty work, compiling piles of data. Instead, they have a clear report prepared for them by a tool that can’t be inattentive and takes intoconsideratikon all the important details. Thus, you can save time and spend it on more creative trading stuff like inventing new strategies and methods.