What is artificial intelligence in trading?

Every day that goes by I see more and more news, articles, interviews, etcetera, related to one of the trends of today: Artificial intelligence and its importance in the world of financial trading.

After all, the criptocurrency bubble is not something casual. In reality it is telling us what direction this world is taking in a seemingly accelerated way: towards a World of standardization, which is another way of calling a virtual (fake) world.

There are those who claim, for example, that this automation has ended the possibility of making profits in some sectors.

There is no doubt that automation and standardization have something to do with what is virtual and “equal” in opposition to what is real and differentiated.

Somehow, artificial trading is showing us the road to a more “predictive” world, so to speak.

I have to admit that sometimes this field of Artificial Intelligence confuses me a bit (just a bit).

Trading in the Matrix

When we read about Artificial Intelligence it is normal that things like Skynet or other related science fiction stories come to mind, and we can think that something like that could happen to our world.

However, when I read most articles about that supposed AI that idea of the classic sci-fi movies and the future “rise of the machines” is not what I infer from it.

Simply, I have the sensation that they are talking about algorithms more and more complex that serves the sole purpose of automation.

The problem of this kind o artificial intelligence is that it cannot be genuine, or say it in other way: it cannot think by itself. It can only copy, never create. In other words, we are talking about an “intelligence” that is excellent in copying but useless in creating, in the pure sense of that word.

So why do they call this process of massive automation “artificial intelligence”?

One article in itprotoday titled “How AI trading systems are going to shake up Wall Street”, written by Mahi de Silva, tells us thing like:

 “So far, the primary benefit of computerized trading is its speed. Some aspects of the financial industry are already making significant use of automation and pushing that speed advantage to multibillion-dollar territory”


“Stocks, bonds and futures trading are heavily automated”

In other words, even the experts in the field are telling us that the entire theme around “AI” in trading is nothing more than a massive application of automation.

At the same time, the article tells us about the supposed “learning” that those machines are doing, as if they think by themselves.

However, that last paragraph does not match with the “automation”. Either you learn or you put automation into practice.

In one article of Techemergence, Alex Lu, CEO and founder of de-Kavout, said something like:

“We can do all this today in natural language processing, which means we can have a computer understand the semantics and meaning of how people say something…and in news, this could be something positive or negative about certain companies, and that’s something we call sentiment analysis. We are building something called a sentiment score, which means we are leveraging all the sentiment we collect from traders, news, blogs, and we’re collecting some of the data from transactions. For example, we collect all the insider data trading sets, so we know for which company, which CEO or CXO is buying or selling stocks; try integrating this transaction data with the trader’s sentiments, and we can come up with a better score to know how people think about a set of stocks.”

As we can see it is a very interesting quote and has a lot of sense from the point of view of a trader.

They try to make some sort of machine to learn what is going to happen next in the market.

That sounds very logic and good.

However, that statement is nothing new under the sun of the trading world.

Traders have always tried to collect data and put it to work (Japanese candlesticks for example), and this is nothing new apart from the fact that it can collect data faster and in a more complex way.

What this company is trying to do, for example, is gather a compilation of news and opinions in blogs to try to gather the market sentiment, so to speak. Nevertheless, it does not mean that it is something more than an algorithm, not to mention that the market sentiment is something we have already measures anyway. Besides, having that sentiment does not guarantee any profitability (in the long-term of course).

Well, the only thing new to me here is that they are applying automation to all fields of human interaction.

That is a technological advancement which makes us produce more with fewer resources.

That I have to admit.

However, inversely, there is a worrying aspect of it: which is the fact that it directs us to a mechanical life, or saying it in other way, to a life absent of reality.

In fact that is not something that is good per se for the traders or chartists.

The last is obvious because with the automation there is less need of technical analysis since with some programming language we can make the “art” of chart reading somehow obsolete.

When your robots are able to “see” and calculate the patterns you do not obviously need those traders.

However, there are two things we should consider:

There was never easy to win money in trading by observing the charts and using indicators, in first place.

The fact that machines can do “better” and more complex trading systems do not mean that they are going to be winning ones.

Where machines are going to have a major advantage is, without a doubt is in the field of market making, where the traditional “traders” of Goldman Sachs are replaced by machines which are more efficient and faster.

But do not confuse ourselves; those are not traders, only market makers or dealers, which is something completely different.

The real traders, you and me, have to fight against the spread, as well as against the market. Something completely different from the “traders” of, say, Barclays Bank, who actually trade against you by “eating” (you alive) the spread you pay.

From a point of view of real retail traders this thing of automated trading is not something good per se, because in reality the market makers will become even more efficient at manipulating such things as the spread.

To be honest, this issue of artificial trading is not my cup of tea, specially because of the fact that everything comes with a price, and the radical automation, what we are witnessing today in the human society, is nothing else than the death of that which is genuine and unique, and that is something that, evidently, is not very good for our liberty so to speak; and that is something we should worry about, but almost nobody seems to do nowadays.