AI Trading Software – Everything You Should Know

Like a science fiction movie, the term artificial intelligence (AI) draws images of robots thinking like humans without emotions. When it applies to trading software, AI is becoming more and more mainstream. What was once considered the realm of hedge funds and institutional investors is now available to retail traders. 

What is Artificial Intelligence?

Artificial intelligence is a computer science that utilizes robust data sets and sophisticated machine learning algorithms to solve problems. It’s the simulation of human thinking and intelligence processes done by computers. The technology is continually evolving with many applications from speech recognition, language processing, machine vision, and in our case, trading, and pattern recognition.  

Artificial Intelligence

What is AI Trading Software?

AI Trading software is a category of programs that will do the “thinking” to helping you make better decisions on trades. There’s different types of AI software to serve this purpose depending on the needs of the user. AI is supposed to get better with more data and more uses. The algorithms utilize machine learning so that it “learns” as it goes and refines itself so that processes are completed more fluidly.

“Artificial Intelligence” vs. Automation

Often times, AI is mistakenly interchanged with automation. While AI can help improve and perform automation, keep in mind that automation simply repeats processes over and over again. These can be complex processes nonetheless, but automation automates a process. AI analyzes processes as it thinks through the sequences looking for improvement and optimization. AI is still in the early stages in the trading space. 

Types of AI Trading Software

For retail traders, there are many options for purchasing, leasing, or subscribing to AI trading software and platforms. Computers are used to speed up things that you would do manually (IE: charting with indicators). Trading can also be automated. AI can be used to gain insights to make better trading decisions. Here are three types of AI trading software.

Trade Idea Generation

One of the most common uses for AI is generate trading ideas. This can be in the form of scanners that search for price and chart patterns that meet certain criteria (IE: 60-minute triangle breakouts). These programs can find the patterns sifting through thousands of stocks simultaneously on its platform to filter and find you potential trading ideas. 

Trade Planning  

AI software can be used to plan you trades by analyzing support and resistance levels in addition to the underlying patterns. From there, it can determine the optimal entry area and the stop-loss and profit target ranges. Automation can be added to actually place the executions, which is what hedge funds and high frequency trading programs do.

AI For Trade Planning

Back-testing

AI can be used to optimize your trading method or system by back-testing set-ups and patterns. This requires access to historical data, but the software will crunch the numbers to provide you data driven stats on how well your set-up or pattern has performed in the past under specific market conditions. You can reverse engineer this way and continue to refine your set-ups based on history, as history has a habit of repeating itself especially in the stock market. 

The Role of AI Trading Software

While AI trading software implies some magical computerized voodoo stock selection, it’s limited to what you do with the knowledge derived from the program. Be aware of what to expect and what not to expect when using this software.

What to Expect

You can expect to get improve analysis as the AI software provides you data interpretation and analysis that could prove eye opening. If you were made aware that a certain pattern is profitable 90% of the time under certain conditions, then would you be able to make a better decision when the pattern arises? That’s what improved analysis does for you. It helps you see things that is not immediately visible but is hidden oceans of historical data. 

You can harness the power of automation for complex calculations with AI software. If you are a coder, you can automate your trading strategies or use a pre-coded platform that will automate certain trades when a pattern arises. It enables you to use the power of computer technology optimally.

Idea Generation is a main reason to use AI software. Whether it’s a stock price and pattern scanner or a news keyword scanner, the bottom line is to find potential trade ideas to monetize. AI software can comb through oceans of robust data quickly to find ideas to trade. 

What NOT to Expect

Don’t expect a foolproof system that never fails or magically works every time. While AI software gets better with use as it learns processes, don’t assume it can’t make mistakes or misfire.

AI software is not a tool that can make you money without any work. It’s not for lazy traders that assume anything it spits out can be traded. You have to know and be aware of the functions and set parameters and configure to suit you needs. You have to be on top of the processes and the outcomes to assess what needs to be tweaked to optimize the software.

AI can’t completely replace “human analysis” component of trading, at least not on a retail lever. At best, AI trading software can help your analysis to enable better or improved decision making. It hasn’t been developed enough to handle all the trading analysis that a human can perform on a retail levels. The markets are dynamic and also breaking new paradigms and it takes a human to stay aware of it.

Examples of AI Trading Software

Here’s some AI trading software that you can kick the tires with to see if they help you.

Trade Ideas Holly AI

Trade Ideas

This software operates as a price and pattern scanner where all the heavy lifting is done on their computers and pushed to your system. The Holly AI component will scan and fine specific robust trade set-ups to consider. You will still need to analyze and pull the trigger.

TrendSpider 

TrendSpider

This platform provides charting and technical analysis. The technical analysis spots patterns and enables you to configure settings to your preferences. It’s AI technical analysis software. You will still need to be aware of the underlying patterns and how to trade them before you consider pulling the trigger. 

Blackbox Stocks

Blackbox Stocks

This is an AI scanner that uses proprietary algorithms to scan the market for stocks and options that are most active. This is where the “action” is and provides you with potential trading candidates.  

Vectorvest + Finbox

Vectorvest

This is AI analysis software that will go through multiple quantitative metrics and technical analysis to determine a buy/sell/hold rating on a stock. The algorithms do the number crunching and provide you the data along with suggestions to improve your own decision making.

Leave a Comment