How Artificial Intelligence Predicts Financial Markets
Role of AI in structuring the Financial Market
Digitalization in the form of artificial intelligence (AI) has not only led to dependence on technology but has also greatly impacted the global economy. AI has successfully maneuvered the routine and mundane tasks, creating jobs, that are advanced in machine learning algorithms. This touched the financial market with visible disruption. The financial market, now, requires computational applications for forecasting, modelling trends and trading information. Neural network is an effective and self-learning algorithmic approach, which when applied in financial market predictions can quicken the process while maintaining accuracy at the same time. This is expected to create a cutting-edge towards future investment decision-making.
How predictable is the financial market?
Over the years, experts have debated over the topic whether the financial market is predictable at all. According to the theory, "Efficient Market Hypothesis", without resorting to illegal means, it is not possible to predict the financial market correctly all the time. This claim was legitimate until recently. With introduction of AI in the financial world, leading firms such as Renaissance Technologies, Two Sigma, and D.E. Shaw could outperform the financial market. A combination of calculation, statistics and AI, powered the financial market with success that was never seen before.
AI used in market prediction
A leading financial technology company, based out of Israel, has already started depending upon AI to formulate stock predictions. The advanced technology of predictive algorithm played a key role in enhancing the effectiveness of the company in stock predictions. This was truly dynamic since AI could recognize the pattern of chaos and the fluctuation in price along with trend. The algorithm used here could successfully predict the movement of stocks, interest rates, currency values, value of exchange traded funds, incorporation of commodities and global indices.
In the instance of hedge funds, AI is dominantly used to predict and trade. Previously it was dependent on algorithm-based on static models that didn’t consider market volatiles. However, with AI, innovative solutions and approaches were implemented which helped to make better predictions even after considering market fluctuations.
Genotick – A self-learning algorithm software
Genotick is a self-learning algorithm program that can create mechanical trading systems. Based on open source data, it can help to predict the stock market. Since the software was created basis genetic or evolutionary algorithms, it can re-learn basis incorrect prediction.
Reasons to depend on AI
The following are the reasons that contributed to increased dependence on AI for financial market predictions:
- Overall analysis of market trends, trading costs and market fluctuations
- Increase the pace of trading
- Identify market pattern
- Gauge trading strategies
- Automate work flow
- Leverage investment opportunities
Hence, we can conclude that AI and deep learning can help to predict financial market movements. In-depth research analysis using AI capabilities on stock market, forex or cryptocurrency is needed for assessment of critical asset management.
- Kathakali Basu