Why Artificial Intelligence is the Future of Wall Street

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Today, it is easy to assume that all frontiers have been explored on this earth but is that really true?  While much of the natural world has been surveyed and catalogued, in the realm of computing and algorithm development, in particular, artificial intelligence, we are just beginning to scratch the surface.  My name is Matthew Sandretto and I have been working at developing trading algorithms for futures, equities and options for over a decade.  I’ve had some great successes and of course, setbacks too, but for the past couple years, I’ve been completely focused on developing smart trading algorithms based on artificial intelligence.  What if you could teach a computer to read the ticker tape for thousands of stocks simultaneously, to learn from that data and then make trades based on the learning that has taken place?

Really this isn’t such a radical idea.  On a smaller scale, it is the very same thing that Jesse Livermore, one of the most notable traders of the 20th c., claimed that he did within his own mind.  While the brain of Jesse Livermore was undoubtedly successful at learning – e.g. he saw an eerie similarity in the market conditions of 1929 to those of 1907, which enabled him to be short prior to the crash; an AI-based algorithm offers many advantages:

  • Analyze thousands of tradeable instruments
  • Long memory
  • Able to assign probabilities rigorously
  • Not subject to emotions and the caprice of human behavior (Our psychological needs can influence decisions, in many cases causing sub-optimal outcomes)
  • No longer data/processor limited with virtual machines/cloud computing
  • Artificial intelligence holds the promise of being able to process all of this information, learn from the data and evolve to be the most effective trader on the Street

The reality is that the market is and probably always will be influenced by human participants.  Should we expect human participants to be able to adequately analyze this environment that is influenced both by their trading decisions and by their act of analyzing it? (see Soros’s principle of Reflexivity) In Charles Mackay’s book “Extraordinary Popular Delusions and Madness of Crowds” he writes: “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” 

Artificial intelligence is the future of trading because it is able to observe the market, and recommend objective decisions learned from its behavior.