Can AI Change the Way We Invest in the Stock Market?
The stock market is one area where Artificial Intelligence can fail. AI and Machine Learning need patterns, behavioral inertia to predict future actions and events. The stock market is not one such industry which runs on a pattern in the short term.
If anything, the stock market is just random events each and every moment. One may be able to trace a mild pattern and knee-jerk reactions to news and events triggering a rise or fall in the price of a stock.
Will AI Benefit the Stock Market?
However, use of AI in the stock market can turn out to be both beneficial and complicating to both trade and invest in the stock market. To complicate matters further, prediction isn’t a 100% possibility in the stock market either.
Human emotions of fear and greed will still rule over the stock market, even if AI were to bring some certainty into the stock market. For that, AI will have to consider both the technical and fundamental aspects of the stock market.
Use of Big Data
Considering Machine Learning uses Big Data, AI can also make use of vast amounts of market data, gauge people’s emotions, reactions to news, analyze underlying business performances, etc. With all of that, AI may be able to arrive at or predict what a stock price can be at a given moment.
The predictive aspect of AI can be useful and beneficial for traders in the stock market. But if many traders book profit out of short term trades, based on predictions by AI, it is common sense to learn that the stock price will immediately and eventually come down.
AI in Trading, Speculation and Investment
And all of the current activities and events of the stock market will continue including buying, selling, shorting (selling and buying back), derivatives (Futures and Options), etc. So, a prediction model in AI could be more useful for traders.
On the other hand, investors may have little to nothing to do with AI in the stock market, as the investing approach uses a simple algorithm of analyzing business performance to invest. In that case, AI may help rank businesses to predict which business will perform the best over which one, in the long term.
The one thing that can come close to being predicted with great accuracy is general stock market forecast. What the numbers will be against what it is now may be possible, considering all factors.
People may speculate on it. However, there will still be some room for failure. And we haven’t yet gotten to AI trading itself against human beings and AI trading against AI itself.