My mother was a senior trader and executive manager at a major Wall Street bank for over 40 years. During her long career, she saw and weathered many booms and busts, including Black Monday (the 1987 stock market crash when the S&P 500 fell 20% in a single session), the Internet boom of the late 1990s, and the 2008 global financial crisis.
While there will always be booms and busts, one thing that remains constant is the dizzying pace of technological change in stock trading. For example, when my mother was young, traders sent their orders through tube systems like those found in banks today. The Internet didn't exist, so traders relied on ticker tapes and had to shout their orders across the room or over the phone.
Artificial Intelligence and Stock Trading
Fortunately, my mother embraced new technology and continued to thrive with the advent of electronic trading. Having an open mind and willingness to learn new technologies can give you an edge in the markets. For example, the late Jim Simons successfully leveraged computers and algorithms to build his fortune of over $30 billion. Citadel founder Ken Griffin began his career working with satellite technology in his dorm room. The use of satellites allowed Griffin to get stock quotes before his competitors.
The AI revolution is here
With OpenAI in late 2022 Microsoft (MSFT) We launched ChatGPT, a chatbot powered by large-scale language models (LLMs). Within a few months, ChatGPT grew like wildfire to become the fastest growing consumer app in history. alphabet (Google) and apple (AAPL) We raced to catch up, and anyone who paid attention would realize that the next technological advancement was here.
“Adapt, evolve, compete, or die.” ~ Paul Tudor Jones
Wall Street giants like Citadel; Morgan Stanley (MS), Bridgewater Associates is already investing in and adopting AI to gain an edge in the market. Most investors don't have the same resources, but smaller investors have the benefits of flexibility and liquidity. I believe investors should start learning how to use this game-changing technology.
How to use AI in stock trading
I believe in embracing new technology, but I also believe that you should only use it if it makes your life easier. ChatGpt is the most widely used AI program right now, so I'll use it as an example. Below are three ways I use AI in trading:
1. Building indicators with AI
Few investors realize that when you enter a trading indicator prompt into ChatGPT, the chatbot will show you the script and how to add it to your charting platform within seconds. In this example, I typed into ChatGPT, “Create a TradingView indicator that changes the color of the volume bar to bright green when the volume is more than twice the 50-day average.” Instead of taking hours to code, ChatGPT gives you the complex code in seconds, and all you have to do is copy and paste it into your platform.
Image source: ChatGPT
2. Portfolio Analysis and Statistics
After more than 20 years in the financial services industry, I have noticed that most amateur investors spend too much time picking stocks and finding the next hot tip, and not analyzing themselves or their portfolio metrics. Luckily for these investors, creating portfolio metrics is no longer a chore. For this exercise, I entered the following trading data to generate key statistics about my stock portfolio: Total Trades: 52, Winning Trades: 39, Average Winning Trades: 30.80%, Losing Trades: 13, Average Losing Trades: 9.97%.
ChatGPT provides you with key portfolio metrics such as win rate, loss rate, and average profit per trade within seconds.
Image source: Zacks Investment Research
3. Learning about the market with AI
Access to AI puts all the knowledge in the world at your fingertips. Let's say you want to learn about a complex options strategy. Instead of having to look up a book on the topic, you can ask a chatbot like ChatGPT or Google's Gemini without ever having to leave your computer.
AI and Robo-Advisors
While AI is a value-add for Wall Street, it is also used as a sales pitch for robo-advisor products. Before investing in a “robo-advisor,” investors should compare the advisor's performance against a benchmark such as the S&P 500 index. What investors find is that most of these robo-advisors charge high fees for investing in index-like portfolios.
Conclusion
The AI revolution is upon us, and investors need to learn how to leverage groundbreaking technologies like ChatGPT and Gemini to gain an edge in the stock market.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
