The Online Investing AI Blog

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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As artificial intelligence–or machine intelligence–makes strides to become a powerful tool of the future, it’s interesting to read this article from a Wired blog.

Scientists are using AI as a tool to unlock the mysteries of symbols found in the Indus Valley. This 4,000-year-old script may represent a spoken language. But linguists have found the script so hard to decipher, they weren’t sure if it was just a bunch of pictures.

It wasn’t…

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According to a report from the Next Big Future, a sentience driving software not only saves money and fuel when it operates a car, it’s also safer. And it may be on the market by 2012.

The software was tested in a vehicle in real world conditions near the Transport Research Laboratory in England. (I hope I don’t have to drive on the left side of the road now.)

The system, which uses GPS-equipped smart phone to determine its position and wireless links to control the vehicles acceleration and braking, saved anywhere from 5-24 percent on fuel, researchers said.

So how much would this incredibly smart software cost? They’re saying about $30 to install.

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According to an article in Technology Review, European scientists have created a silicon chip that comes close to the human brain’s “structure and function.”

In fact, in some ways, it exceeds the performance of the human brain.

The prototype was created by scientists at the Heidelberg University of Germany. The design features 200,000 neurons that are linked to 50 million synapses.

Researchers say that the chip works 100,000 times faster than a brain.

While the jury is still out on how the performance of the prototype will hold up, it’s a sign that AI researchers are getting close to that threshold where computer intelligence will match or beat human performance, at least technically speaking.

Other hurdles remain, but the trek to the Singularity continues.

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Automated Trading is, arguably, the latest wave in investment technologies.

The concept that one trader’s investment calls could be instantaneously transmitted to thousands of other investment accounts and can then be enacted is a pretty revolutionary concept. It can be a pretty powerful tool for certain types of investors, who want the same upside potential as trading without the long hours of research and monitoring.

But can Automated Trading be improved?

There are several ways:

Faster transactions–Improvements in the speed of transactions can give Automated Trading participants the split-second edge to seize and take profitable positions before other traders.

Improved security–Security is always a concern of investors in Automated Trading systems. As new forms of encryption are utilized and more responsible brokers and signal providers enter the market, this will be less of a concern.

Multiple assets–Increasing the mix of assets would be a great improvement and add to the client’s ability to lock in higher returns.

Increased customization–Allowing investors to choose from multiple systems, methods, and assets can create self-directed hedge funds or personal mutual funds.

There’s one other way that Online Investing AI is exploring: Using advanced technology to improve the calls and consistencies of the positions. Artificial intelligence technologies, like genetic programming and neural nets, are the most interesting. This technology creates Automated Trading systems that are more nimble than their strictly-technical counterparts and avoid the greed- and fear-based emotional calls of human traders.

By working to address all five ways to optimize Automated Trading systems, this new-wave method of investing may be a more mainstream way for investors to build wealth and attain financial freedom.

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