Artificial intelligence technology is changing the state of modern finance. A growing number of investors are utilizing AI to improve the effectiveness of their trading strategies.
The right trading strategies allow you can earn money in the financial markets more easily. AI technology has helped investors leverage trading algorithms that improve potential to make a profit.
In this post, we are going to cover the basics of choosing the right strategy and using AI to guide your decisions.
Important Fundamentals that Investors Need to Understand
When you are trading financial assets, whether they are stocks, bonds, fiat currencies, cryptocurrencies or commodity futures, you must understand the importance of price action strategies. You need to establish a clear criteria for making trading decisions.
Trading strategies are formed on the basis of one or more market analysis methods. These methodologies can include:
- Fundamental analysis of shares. This includes an assessment of the company’s financial performance, multiples, prospects and risks.
- Fundamental analysis of the forex market. This is the study of the monetary policy of central banks, key macroeconomic indicators and their dynamics.
- Technical analysis of the chart. This is the determination of levels, key price values, trends, technical analysis figures;
- Candlestick analysis. This is the presence of patterns and combinations of Japanese candlesticks, which give a signal about the further direction of the price;
- indicator analysis – the market is studied using mathematical indicators that can show price reversal points (oscillators), various intersections (trend), price levels (Fibonacci tools and others).
By combining two or three methods of market analysis, a trader should clearly understand what a position entry signal and exit point looks like.
What are the trading strategies?
Trading strategies are different, they are developed, as a rule, for a certain style of trading and a list of financial instruments used. An experienced trader can form his own strategy by combining the most understandable methods of market analysis.
At the same time, it is important to remember the main rule: profitable trading is possible only when the work is carried out according to one strategy on one account. The strategy must first be tested. Its potential for profitability proven, after which is necessary to open deals without missing signals. Good strategies give not only profitable, but also unprofitable signals. But in total, the result for positions that closed positively exceeds losses and allows the trader to earn.
The strategies are divided into:
- by the period for which analysis and trading is carried out, as well as the period of holding open transactions: long-term, medium-term, scalping and intraday;
- by methods of market analysis;
- on the instruments on which they are used;
- by risk management features (aggressive, conservative, moderately risky).
For profitable trading in the financial markets, a trader needs to have a strategy and follow it clearly. You should choose a strategy based on your own preferences: a convenient time period, the most understandable method of market analysis, comfortable risk management. Some brokerage companies offer trading strategies to their clients.
But at the same time, we must experiment with many strategies and choose the one that is closer to you and that you really understand. No one will earn your money instead of you, so you should be extremely careful and responsible in this matter.
How Can You Use AI to Improve the Effectiveness of Your Trades?
AI has become enormously beneficial for traders. Here are some of the benefits:
- Traders can use predictive analytics algorithms to predict future price patterns.
- Traders can leverage automated trading with algorithms that rely on machine learning to make better real-time trading decisions.
- Traders can identify correlations between profitability and various trading decisions based on AI-driven machine learning algorithms.
AI has a lot of potential for financial traders trying to improve profitability. They should try to leverage it strategically for the best results.