Artificial Intelligence Aids in Executing Smart Trades
Artificial Intelligence Aids in Executing Smart Trades
The year ahead has a lot in store for the dedicated investor and trader who is trying to gain an edge anywhere possible.
One of the most talked about and promising areas for improving the probability of success is the implementation of artificial intelligence, or AI. The technology is advancing rapidly, holding Moore’s Law true to form as the capacity of AI is doubling every two years, if not faster.
Adoption of artificial intelligence in many industries will take hold and dominate how certain things are made. Adapting AI to the financial markets will require more time and sophistication than something like Siri finding information on your iPhone or your Amazon Alexa finding you a ride from Lyft.
With that said, the hedge fund community is investing vast sums of capital into AI to help generate consistent performance with lower volatility that has real potential of outpacing the benchmark indexes year after year. For professionally managed funds, there are two interconnected factors that drive the adoption of AI.
The first key factor spurring AI is the exponential advancement in computing power as data moves from on-site to off-site cloud data centers that are filled with servers loaded with cutting-edge processors priced at a fraction of the cost of just five years ago. The second primary catalyst behind AI’s phenomenal growth is the sheer availability of data.
If processing power is AI’s engine, then information is its fuel. Artificial intelligence allows engineers to teach algorithms to adapt and learn skills without human interaction. This is called “machine learning” and is exactly what I deploy with every trade I recommend. Other code names for this science are “neural learning” and “deep learning.” Training a machine to ferret out information where statistical data and content is relatively fixed is much easier than trying to coach a machine to adapt to a highly fluid environment.
Finance is perhaps AI’s most challenging space to achieve a high degree of accuracy. Training a computer to break down how a stock behaves against a multi-faceted trading landscape is highly sophisticated. Markets are influenced by economics, regulations, politics, news events and human judgement. To say the ground is always shifting under Wall Street is an understatement and all these variables impact how a computer spews out data such that it can lead to nowhere if its algorithms are not constructed right.
If designed properly, AI can enable the stock selection system to adapt based on the information it receives. Software engineers set statistical parameters, designate asset classes, levels of volatility, risk exposure caps, technical filters and constraints within the DNA of the system they are creating. The model then seeks out patterns making connections among the millions of bits of data that humans cannot see and produces educated predictions based on historical evidence that in turn determine levels of probability.
This ability to assign an accurate level of probability is a key feature in why I place emphasis on an AI software input with each of my stock or exchange-traded fund (ETF) recommendations. History has a propensity for repeating itself in a static world, but within the investing world, past behavior isn’t necessarily a good guide to future performance. Thus, applying all the various data parameters gives us a laser-like focus in asset selection.
When applied to some of the most trusted stocks in the market, an AI system identifies winning stocks registering high probability readings that are forecast to keep on winning during the next six months. For instance, the model that I utilize is truly bullish on Verisk Analytics (VRSK), which just so happens to carry a probability rating of 92% accompanied by a very bullish trend indicator. The company provides data analytics solutions for customers in the insurance, natural resources, health care, financial services and risk management markets in the United States and internationally.
It is not every day we find a stock with such powerful institutional sponsorship where the near-term technical future is so bright that a 20%+ move higher is anticipated from the AI model for what is one of the most trusted names within a strong financial technology (fintech) sector. The bullish readout for Verisk Analytics affords an investor the ability to own the stock with confidence and use any pullbacks in the shares to initiate and add to positions.
Verisk Analytics is a current trade recommendation for my Hi-Tech Trader service, where I look for stocks that are in technical upside breakouts and we are looking to book profits inside 30 days. I also recommend a corresponding call option strategy to leverage the stock recommendation for those that prefer to trade options.
I just launched the Hi-Tech Trader service back in mid-December 2017 and have already booked fantastic gains in Texas Instruments, Twitter, STMicroelectronics and PayPal. In fact, the current pace we are on has us annualizing 458% and we’re only one month into the year!
Having a market-tested AI model at your disposal is not just a handy tool, it’s an engine of constant information that provides what I call “a peek around the corner” of what to expect over the short- and intermediate-term. It’s exactly why, when you walk into the offices of the biggest hedge funds in the world, there is a growing presence of super-bright software engineers working day and night on streamlining in-house AI models with the aim of bettering portfolio performance.
The problem for the individual investor is that the price of entry into a hedge fund as a customer can run into the millions of dollars. At Hi-Tech Trader, I bring you the same AI capabilities where access to real-time forecasting is available within a highly favorable price structure. When your AI toolbox pays for itself in the first month of investing, you’ve found the right system that will serve you well for months and years to come. That place is Hi-Tech Trader, and the power of AI is right here at your fingertips. Click here to put cutting-edge technology to work for your trading portfolio today.
In case you missed it, I encourage you to read my e-letter article from last week about the unfolding of the fourth-quarter earnings season.