The Online Investing AI Blog

Whether it’s under the guise of high frequency trading or algorithmic trading or quant trading, advanced technology is becoming more accepted and implemented.

This technology includes artificial intelligence and machine learning.

There’s a good chance it’s trading at least a portion of your money right now.

Is this a good thing? Yes.

Is this a bad thing? Yes.

Could it be bad and good all at the same time? You bet.

The most important thing is be prepared for this revolution in finance. Here are a few ways to be prepared for artificial intelligence in finance.

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I first connected with Nick at Becoming Capitalist through this blog. When I read his intro, I liked the way Nick thought. He sees artificial intelligence and automated-algorithmic trading as a way to tap technology for personal financial freedom. We call that the Wealth Singularity. I’ve been reading Nick’s blog and communicating via email. I’m pretty impressed and thought you might want to see an Expert Profile on what Nick is up to and how he approaches automated trading.

What attracted you to automated or algorithmic trading? Why is this so important to you?

The attraction for me to automated trading was driven by the same desires I had getting into IT and software development. When I see a problem or a set of work, I look for ways to automate it and streamline it. And then of course I have a computer do it. This really provides endless satisfaction. Those who build or create anything understand the feeling of joy when there creation is finally complete.

For the programmer, this joy can be ongoing. Unlike a machine, once you’ve coded something it will execute perfectly again and again; never again requiring your input. I suppose the objective in trading then is for your AI to become a version of you without your bad qualities. No emotion, never tires, hungers, or needs a break, and can multi-task in ways you could only dream of.

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jurvetson @ Flickr

As someone who is interested in artificial intelligence, especially how AI will work in a financial environment, there’s a lot of information out there.

And that information doesn’t always agree. In fact, there’s a chasm of difference between the camps of AI advocates and critics. There’s also a difference in opinions about the potential for AI to change things–or mess things up, depending on that outlook.

That’ what makes an article in H+ Magazine so interesting. The article, based on Eric Drexler’s Engines of Creation, just looks at the effect a little AI will have on the world when mixed with nanotechnology. We’re not even talking about massive AI here.

The effects on the economy would be startling.

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Pic by the Alieness GiselaGiardino @ Flickr

Artificial Intelligence, or machine learning, or simply AI, drives more and more financial systems. The big boys –from hedge funds to mutual funds, and everyone in between–use AI.

The types of AI that serve as the foundation of these financial application are wide ranging is size and scope. The programming varies, too. Genetic programming, neural networks, and a host of other applications are used as underpinnings for the strategies and algorithms.

Since most independent traders don’t get a chance to invest in hedge funds, Online Investing AI, we want to create trading systems and strategies for independent traders and investors that are based on the performance of the best AI technology.

It’s a pretty audacious task. That’s why we need you.

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In 1997 chess grandmaster Gary Kasparov met the Singularity. And the Singularity won.

In 1985 Kasparov easily beat a chess-playing computer, even though he resorted to a trick to out-Kasparov the machine’s Kasparov program. Eleven years later, though, the chess legend struggled with Deep Blue, a computer with even more powerful processing power. But even Kasparov couldn’t compete with Deep Blue once its development team doubled the processing power a few years later.

Kasparov was beat, but he drew new lessons from the run-in that he details in New York Review of Books. These lessons might help you become a smarter–and less anxious–trader.
According to Kasparov, the exponential gain in technology didn’t ruin the game; it actually had some surprising aftershocks.

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Genetic Algorithms are a specific area of Artificial Intelligence that has the power to change the world. Why? Because they allow us to solve very difficult problems that have no known solutions. These problems include:

• How do you design a jet engine to optimize efficiency?
• How do you optimize the components and connections in a circuit board or chip?
• How helpful is a movie recommendation from one person for another person?

These perplexing problems have no simple solutions, and often the details of the question are unclear. Genetic Algorithms are flexible enough to give us high quality solutions to these difficult problems.

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We talked yesterday about traders fearing that Automated Trading will turn them into lazy slobs. The fear, I think, is unfounded.

Another fear real traders have is that Automated Trading will turn them into idiots. By relying on technology to complete their trades, they’ll lose their knack for picking winners. Or so the thinking goes. Maybe they’re afraid the instincts that they have honed over years in the market tranches will fade. Or, some of this knowledge will just disappear.

If you don’t use it, you’ll lose it.

I believe this fear is completely ungrounded. If the Automated Trading system or systems are use correctly, they can be study aids for the trader. And, at the very least give the trader time to study and implement his or her own position moves.

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There’s an unsettling feeling when you watch artificial intelligence at work: it doesn’t look artificial at all. It seems natural.

I have to admit all those scary images of robots taking over the world haunt a corner of my mind. Another unsettling behavior is the spooky parallels between the AI trading and human-driven trading.

There’s something called “over-training” when an AI trading system is actually limited from trading effectively because it has too much data.

Does this sound familiar? In my own investing-trading experience, I’ve found that I can over-think a position. This can lead to over-trading. You second and third and fourth guess your trades based on the stream of information coming at you from all directions and your own internal mood swings.

So, what does AI teach us about how to avoid our own over-training?

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For years, during the late 1980s, I was a disc jockey.

The shifts ranged from six hours to 12 hours, six days a week. During that time, I had a stack of records from the list of top 40 songs to play. I would play about two songs from the top 40 list.

And then I would mix in an “oldie,” a non-current selection from a library of a couple hundred songs.

Over. And over. And over.

Day in. Day out.

Now, there are entire eras of music that I used to love that I can no longer listen to. I’m sick of those songs. Lynyrd Skynyrd is ruined. I can barely listen to a couple of Led Zep songs without wanting to reevaluate my lunch.

Had AI been around I might not have had such a bad reaction.

A group of University of Granada students have created, Immamusys.

The developers say, by using Artificial Intelligence, the software they created can produce original, copyright-free and emotion-inspiring music that can change continuously.  No more six-hundred repetitions of Freebird!!!

But the lack of classic rock is just the beginning of AI’s capabilities.

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Many people are excited about the prospects of Automated Trading systems. These computer programs automatically buy and sell stocks, options, currencies and other liquid assets like a human trader. The big improvement is that they can consistently generate positive returns without the emotional reactions of human traders.

There are many different strategies to developing Automated Trading systems. Some people try to encode the strategies of successful traders into a computer program. Although this approach is perfectly viable, we believe there is a better way. What if it were possible to develop Artificial Intelligence that could generate it’s own trading systems. Would it be possible to create systems that work better than those designed by humans?

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