Investment management offers a wide range of approaches, each with its own clear benefits. For instance, you can dive deep into economics and finance, develop your trading expertise, and test out various investment strategies to find what works best for your goals. You can also consult with experts or completely entrust them with the management of your investment portfolio. But the most progressive solution is to use an AI trading bot. This newest technology has unique capabilities that surpass the human mind. With its help, you can achieve significant success in trading in different markets — crypto, stocks, Forex, etc.
From Trading Bots to AI-based Trading Bots
In recent decades, trading has reached a fundamentally new level thanks to automation capabilities. Automated trading technology has freed traders from the need to constantly monitor the exchange trading terminals. The efficiency of trading deals has increased, and with it the profits of traders and investors. Automation in trading has found many practical applications that are still relevant today:
- Signal Trading;
- Copy Trading;
- Trading Bots, etc.
A few years ago, the standard approach involved customizing trading bots to fit specific strategies. This meant traders had to manually define the exact conditions and rules the bot would follow, triggering actions based on a fixed, pre-programmed algorithm. For example, when the price of an asset reaches a certain level, it should open a position to buy or sell an asset. To minimize losses if the market goes against your strategy, you can set a stop-loss in advance. In this case, the trading bot will automatically exit the market when the stop-loss conditions are met.
There are certainly many benefits to this technology, especially when you trade numerous assets. By setting up multiple trading bots, a trader can easily scale their operations. Additionally, they can confidently explore new markets they haven’t previously entered. However, the capabilities of AI-powered trading bots far exceed those of conventional trading bots or expert advisors (EAs).
Why AI Trading Bots Far Outperform Regular Trading Bots
AI-powered trading systems have demonstrated excellent results over the past decade. That is why their number on the market has grown significantly in recent years. Even professional traders with the most advanced trading bots could not compete with artificial intelligence. And those investors who were still using outdated automation began to notice a significant drop in their income. Although at the beginning of applying this technology in trading in the early 2000s, it provided a tangible advantage.
The spread of AI technology has changed this situation completely, as those traders who started using it received a tangible competitive advantage. Investors who have already appreciated the advantages of AI trading bots confidently trust them to implement the most complex trading strategies.
The key advantages of AI-based trading bots compared to regular ones are:
- Trading bots without artificial intelligence are completely dependent on the traders and their decisions. They can help automatically implement traders’ decisions, but they cannot suggest the most effective solution themselves. On the contrary, AI-based bots can make decisions without human participation if you give them such rights.
- An AI trading bot can come up with a new strategy based on the huge database of empirical data to which it has access. It will suggest it to and test it before using it in practice. And if it turns out to be imperfect, it will improve it and test it again to achieve perfection.
- AI can imitate the thinking of professional analysts to develop their strategies, while regular bots rely on the thinking of the traders themselves. Thus, with regular bots, the trader gets ideal performers, and with AI-based ones, real professional advisers.
- An AI trading bot can adjust its strategy based on fresh data. This is especially valuable if new information contradicts the strategy it is implementing. In this case, you will not lose your assets, as would happen with a regular trading bot, which always acts according to the algorithm you have set.
How AI Trading Bots Help Make More Informed Investment Decisions
- Data Analysis. An AI trading bot collects and analyzes information from multiple sources. In addition to market statistics and financial data, this can include news, information from social networks, blockchain data, etc. Based on this, the AI trading bot will perform technical and fundamental analysis. Thus, AI can process both structured and unstructured data, which significantly increases its analytical capabilities. Moreover, all this information is analyzed simultaneously in real time. Therefore, even during periods of market turmoil, AI will help you find the most profitable strategy.
- Sentiment Analysis. The value of artificial intelligence lies in its understanding of the text much more deeply than conventional classification algorithms. It can distinguish the tone of a message, detect sarcasm, implicit meaning, hidden context, etc. In all this variety of data, it will detect early warning signals and will be able to predict potential challenges. This way, you can prepare for market shocks and get tangible profits instead of losses.
- Portfolio Management. Determining optimal portfolio compositions is one of the most challenging tasks for an investor. If you diversify your risks correctly, it can save you during periods of economic turmoil. Machine learning algorithms are better at this task than the human mind. They are more objective in assessing risks and market conditions. In addition, unlike humans, they are impartial and not subject to emotions. Therefore, they do not make decisions based on wishful thinking. They will analyze historical and other data to construct the best asset allocation. And when market conditions change, they will react to it instantly. Moreover, they will be able to anticipate most challenges in advance and take actions that are consistent with your investment strategy.
The Bottom Line
The effectiveness of AI trading bots is evidenced by their popularity among institutional investors. Since they have much more resources than ordinary investors, they can order the development of AI bots for their trading needs from the best software developers. However, recently, this technology has become more accessible to retail investors as well. Such sophisticated AI-powered tools are excellent assistants in managing investment portfolios. They cope well with challenges that can baffle even the most professional trader.