Article prepared by CEO of Exscudo Andrew Zimine
As our civilization continues to progress technologically we are slowing getting into, what some call, the 4th industrial revolution. This new era will be marked by breakthroughs in a number of fields such as robotics, nanotechnology, quantum computing, biotechnology and many others. We can see some examples of this already with the surge of autonomous vehicles and 3D printers. But among all of these new fascinating technologies, there is one that is particularly controversial and that is AI, or artificial intelligence.
Humans vs Machines
Before we go into trading it’s important to note that competition between man and machine has been taking place for quite some time now. The year was 1996 and Deepblue, an AI constructed by IBM, was competing in a chess match with Garry Kasparov, one of the greatest chess masterminds. Kasparov was able to beat Deepblue but things changed the following year with Deepblue winning over Kasparov, who was undefeated until then. Although AI had already beaten a human champion before in backgammon, this was the first time the general public saw the prowess of AI. Since those events AI has rapidly evolved and is now beating world-class human players in board games such as GO, in Poker and in videogames (Super Smash Bros, DOTA 2).
Now that we’ve got some perspective, let’s look at how humans and machines fare in terms of financial trading.
If we take a look at traditional finance the machines have not taken over, seeing as there is still a lot of human traders. But is it predestined to continue like that? Only the future will tell, but probably we humans will always have some kind of upper hand on trading robots, even if that upper hand is inside information.
Advantages of Humans over Trading Robots
The trading robots are good at analyzing enormous amounts of past data and making short term trading decisions using the information gathered. However, they might be oblivious to a market shift that to an experienced trader is easily identifiable. A great example of this is the current inability of the trading bot to analyze and interpret economic news. In short, the bot deals extremely well with data and information but lack true knowledge or wisdom.
Another disadvantage of trading bots is their constant need for adjustment. As the market changes the trading bot needs to be adjusted as well because what might have been a winning strategy yesterday it is now losing money. A great risk one takes when using the robot is that he may continue to make bad trades indefinitely if left unchecked.
And finally, the trading robot does not learn from previous actions, it simply performs as it is set up to. This means that whoever programmed the robot and configure the settings is responsible for the success or failure and not the software itself.
One day a robot might be created that can successfully interpret economic news, automatically adjust and switch strategy and even be able to learn from previous trades. Until that day comes, if it comes, humans are still capable of wielding a higher profit than their synthetic friends.