The Role of AI in Trading: A Boon for Crypto Traders
Artificial Intelligence (AI) and cryptocurrency are two of the most cutting-edge technologies of our time. Naturally, it was only a matter of time before they found a way to complement each other. Today, we will explore the definite advantages and drawbacks of utilizing AI in cryptocurrency trading.
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Artificial intelligence has significantly eased the work of traders, taking on a large part of their daily routine tasks, such as technical analysis, market monitoring, information filtering, historical data analysis, and automation. A report by the analytical company Mordor Intelligence states that algorithmic trading accounts for 60 to 73% of stock market trading in the US. The cryptocurrency market, being open 24/7 and difficult to monitor physically, experiences an even more pronounced impact.
AI can be of help to traders in several ways.
Automated Trading Strategies: These entail AI-based algorithms enabling traders to determine specific regulations for opening or closing a position. While algorithmic trading pre-dates AI, artificial intelligence has significantly enriched this tool by providing the capacity to scrutinize vast data quantities in real time, align it with past data, and make price movement predictions.
Sentiment Analysis: This tool eliminates the need for traders to continuously monitor social media platforms, news websites, Elon Musk's tweets, and other influential factors when making trading decisions.
Risk Management: Deemed a pivotal skill for traders, individuals often disregard the unwritten rules of trading, swayed by emotions. AI algorithms can, however, set stop-loss and take-profit thresholds based on market conditions and historical data, thus minimizing potential losses while securing profits.
High-Frequency Trading (HFT) or Advanced Scalping: An AI-based trading bot can analyze and make decisions faster than a human, reacting to market movements instantaneously.
These benefits are all accentuated by the absence of emotional prejudice. Artificial Intelligence is immune to feelings; it doesn't fall prey to FOMO, nor does it make decisions influenced by fear, greed, or amid a sea of negative or positive news. AI-based trading systems operate devoid of emotions, basing their trade executions solely on data and pre-established algorithms, leading to more reliable and steady trading strategies.
However, it's critical to understand that AI and AI-based trading systems are primarily support tools for traders. Even though it would be ideal to eradicate the emotional factor entirely, intuition and psychological insights are part of the analysis process, areas where artificial intelligence is inherently deficient.
Another considerable downside lies in the intricate technical knowledge required to develop these systems. However, there's the option to utilize one of the myriad services offering trading bots, although these usually entail commission fees on your trades or have premium versions providing an expanded range of tools.
While AI is adept at analyzing historical data, this proficiency can become a hindrance in a highly volatile market with unpredictable events, potentially leading to flawed trading decisions. In simpler terms, making forecasts in the crypto market based purely on historical data is a tricky endeavor.
To sum up, artificial intelligence has substantially lightened the traders' workload. It's a tremendous supportive tool that frees traders from the need to be perpetually glued to their screens. Yet, at this juncture in AI's evolution, it would be unrealistic to expect that it can fully replace human intervention and earn you money while you lounge on your couch.
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