Every industry is going forward with the advancement of AI and automation. Including the trading industry. But if you’re a new trader, AI can harm your growth and progression.
I’d go as far as to say that AI and automation should only be for experienced traders, and here’s why:
Humans are hardwired to go for the path of least resistance.
AI looks like the “easy” way to become a profitable trader as a trading bot is emotionless and carries out tasks as instructed. Many new traders become sucked in and end up buying trading bots. What they don’t realise is this:
A trading bot is only as good as the programmer or trader that coded it.
If a bot isn’t coded or configured to behave like a successful trader, chances are that it won’t. The inevitable frustration kicks in when a bot isn’t going in your favour, and you don’t know why. At this point, you’ll be inclined to change your bot’s settings – and potentially trial and error until your bot starts winning.
Now, you’ll face a series of challenges to understand why your bot isn’t working.
If you were an experienced trader, you wouldn’t have this problem as you understand trading, your markets, and ultimately the strategies that work.
There’s no escaping struggle in trading (or life). You have to go through it one way or another:
- Immediate struggle, long-term comfort.
- Immediate comfort, long-term struggle.
Most people unknowingly choose the 2nd option in most endeavours as routes of immediate comfort trigger normalcy bias.
In trading, immediate comfort would be buying trading signals and bots. Immediate struggle in trading should be obvious – it’s learning how to trade!
By figuring out how to trade and then developing working strategies, there would be fewer challenges in switching to AI-based trading. In fact, the only challenge should be coding strategies you know and finding a coder who can do it.
Here’s another interesting take on AI trading:
If traders aren’t giving away their profitable strategies, what makes you think they’d give away their profitable AI strategies?
Most traders wouldn’t, including you. Even if they give away winning strategies and bots, why would they make the price of something “valuable” cheap enough for most to afford? That doesn’t make sense too.
AI has heavily changed the trading game. But guess what hasn’t changed: The percentage of losing traders.
This is why learning how to trade first is essential – the knowledge is your psychic self-defence against trading traps.
As said previously, there’s no escaping the struggle process of trading. The best thing you can do is endure it early on by learning the game.
Immediate comfort and winning is worse than immediate comfort and losses.
Winning creates a positive feedback loop, as it should, but it becomes a problem when you’re following a flawed trading system. You wouldn’t feel the need to further your understanding of trading. Each win reaffirms your current reality.
But things go terrible when you lose. You won’t be able to accept your trading system failing as you can’t understand why. It could be due to you or your bot enacting a high-win rate strategy where losses risk 50% or more of your bankroll. Or could it be caused by your trading strategy being profitable for 5 trades but not 50 trades.
Also, what do you do when your trading bot stops working?
You can’t revert to manual trading as you don’t know how to. You’re screwed. It’s like being in a driverless vehicle that stops working in the middle of the road.
Anyway, get familiar with trading before taking the AI-based trading route.
In the long run, it costs too much money by not learning to trade the right way upfront.
To help you out, here’s a realistic way to look at trading, which includes a 4-step process to make things even easier – How To Treat Trading Like a Business (because it is one).
Happy trading!