When I tell people I’m into algorithmic trading, the most common initial reaction… is fear. All of a sudden, images of TikTok gurus selling a trading Discord and Instagram Snake Oil Salesmen flood their minds, and they instantly think that I’m going to start shilling the next shitcoin or penny stock trend.
|
What most people fail to realize is that algorithmic trading is a vast field and does not necessarily mean day-trading or high-frequency trading. In fact, thanks to the advent of Large Language Models, people are starting to fire their financial advisors and use algorithms to manage their long-term investment portfolios.
|
AI can do a lot of things that a regular, human advisor can’t. It can query the world for stocks belonging in a certain industry, learn which companies has their earnings increase for 3 out of the last 5 years, and even craft customized strategies that fits a specific investment theses. This article will be an introduction to how Large Language Models and AI can be used to craft long-term investment strategies.
|
Dispelling the Myth that AlgoTrading Means Day Trading and High-Frequency Trading
|
Thanks to social media, people have many misconceptions about algorithmic trading. Even seasoned investors automatically assume you’re talking about daytrading when you mention algorithmic trading. This is because floods of articles on Medium, shorts on YouTube, and Reels on Instagram basically rehash this same idea. People are imagining lines that are jumping up and down on a chart, using customized technical indicators, and competing with some of the biggest hedge funds on the world like Jane Street and Citadel.
|
However, algorithmic trading doesn’t have to mean any of this. While algorithms are effective at finding short-term price trends, they are even more powerful when searching for vast quantities of information. AI can be used to query the vast array of financial data, and identify high-performing stocks in the industries that the trader is most interested in. It can be used to analyze the news sentiment across hundreds of stocks instantly. The rest of this article will dive deep into 4 use-cases of AI for long-term investing.
|
Use Case 1: Using AI to analyze a company’s financial statements
|
Seasoned investors know how to analyze a company’s financials. It’s “simple”. You just go onto the SEC website, search for Apple, find the report you want, and read this dense PDF that explains exactly how Apple did.
|
|