Investing in shares and trading them on the stock exchange can result in both potential profit and loss. The implementation of a positive scenario depends on many factors, including knowledge of fundamental and technical analysis, analyzing news and reports, etc. One of the most essential factors is the capability to mitigate potential risks using AI stocks trading and other effective tools.
Why Traders Need Automated Assistants for Risk Management
Some traders believe that they will succeed simply by knowing how to recognize and manage risk. However, this is not enough. To achieve success in trading, you will have to engage in risk management every day and evaluate each trade not only from the point of view of potential profit but also probable risks. Doesn’t sound very inspiring, does it? But the good news is that the level of development of Artificial Intelligence is high enough to delegate this function to it:
- AI will accurately recognize the potential damage that a trader may suffer and warn them about it. This function is performed by expert advisors (EAs).
- If you completely trust AI, it is better to use special AI-based bots. In this case, you will get instant execution of the necessary actions to neutralize potential risks. Thanks to such an assistant, you will get a lot of free time to solve other tasks.
Why Risk Management Is So Important in Trading
In stock trading, risk is treated somewhat differently than in other areas of life. Experienced traders know that bigger returns on investments are only possible if you take on greater risks. The profitability of low-risk operations is significantly lower. Therefore, risk-averse conservative traders tend to have low investment returns. Thus, every trader once faces a choice:
- Higher profit but higher risks;
- Low risks but also lower income.
So, instead of trying to avoid risks, you need to learn to manage them using analysis of market volatility, historical data, and other indicators. In this regard, AI will be an indispensable assistant even for experienced traders since it is trained to perform all these tasks.
Advantages of Artificial Intelligence Compared to Manual Risk Management
Artificial intelligence is designed to enhance human cognitive abilities. This is achieved due to greater capabilities in data processing and neutralization of the influence of emotions on decision-making. These unique features of AI can be used in trading:
- Risk management requires processing a huge amount of historical data and searching for correlations. AI easily copes with the analysis of large datasets and instantly provides conclusions or takes the necessary actions.
- AI is not influenced by emotions and, therefore, does not rush to conclude deals in anticipation of big profits or, conversely, does not hesitate in fear of losing a lot of money.
- AI operates in accordance with clear algorithms and proven models and errors when opening or closing orders are eliminated.
- The level of AI development makes it possible to conduct not only technical analysis but also fundamental and sentiment analysis.
- AI’s response is much faster than that of a human. So, where the profit or loss of a trade is determined in a fraction of a second, AI is more likely to make a profit, and human is more likely to get a loss.
- The advantage of AI-based bots is their ability to self-learn. Bots are capable of adding data for deeper analysis and learning from their mistakes.
- Advanced bots can trade in parallel across multiple markets, allowing you to scale trading operations.
- The use of bots reduces operational costs and frees up traders’ time.
AI Capabilities for Risk Management in Stock Trading
Robust risk management practices include many tasks that AI can handle:
- Historical data analysis;
- Placing effective stop-loss orders;
- Portfolio diversification;
- Study of market dynamics and volatility, etc.
AI can also detect potential cyber threats, so it can provide an additional layer of protection for your investment.
Nuances of Configuring AI Bots
The software market offers many types of AI bots, designed for different types of trading or skill levels of their users. The choice of a bot largely depends on what type of trader you are:
- Long-time trader
- Swing trader
- Day trader
- Scalper
Besides that, there are universal bots suitable for performing assigned tasks as part of any trading strategy. You can use ready-made strategies or customize bots in accordance with your strategies. When you define the conditions of your strategy and set the bot to it, the bot will automatically perform the actions you administered to it. Thus, you can use an AI bot around the clock without worrying that it might make a mistake because of fatigue.
However, no matter what advanced AI bot you purchase or the unique strategy you develop, do not rush to immediately put the bot into action. The trading platform you use should have the ability to test strategies. Therefore, it is better to test this strategy first and only then configure your bot for it.
Which AI Bot to Choose for Stock Trading
If you need effective risk mitigation, choose AI bots from AlgosOne. You will get advanced AI assistants based on natural language processing models, which self-improve from each trade performed. All bots are licensed and have a proven success rate of 80% or higher. They can process information in many languages, which will significantly expand the number of data sources for analysis. Your predictions will become much more accurate, which means the risks will be much lower.
Conclusions
The use of AI for risk management has an undeniable advantage in terms of speed and depth of analysis, lack of emotions, tirelessness, etc. Moreover, unlike conventional software that implements tasks exclusively according to certain algorithms, AI is capable of self-learning. By analyzing its successes and failures, it can select the best practices and expand the base for analysis.
Most analysts predict that in the near future, the majority of stock trades will be delegated to artificial intelligence. The sooner you master risk management using AI bots, the easier it will be to subsequently adapt new technical capabilities that will appear on the software market.