How Chat GPT is Influencing the stock market
How Chat GPT is Influencing the stock market
Written by Katie Gomez
ChatGTP is a powerful language model from the OpenAI research organization that uses deep learning to generate human-like responses in conversational contexts. Its popularity exploded in 2023 with students, teachers, and writers all feeling the impact of its popularity. However, it is affecting more than people think. As this type of language model AI finds uses in the financial markets, traders should be aware of the changes happening.
The stock market is incredibly reliant on the economy and greatly influenced by public sentiment. Nowadays, many people are learning more about AI. ChatGPT technology, although not available for sale yet, is noteworthy. Traders need to understand it to stay current with public trends. They shouldn’t be caught unaware if it becomes marketable in the future.
If you feel lost about what ChatGPT is or its purpose, it is basically a newer, sleeker AI version of Google. Created by OpenAI technology, GPT is designed to assist and help provide information to its users from its massive data pool of human-generated answers (Quantified Strategies, 2023).
ChatGPT delivers data quickly on any topic you input. Students can pose questions. Writers can create outlines. Marketing teams can find inspiration. Traders can enhance their strategies. It’s been used to code trading strategies and indicators. It even predicts future market trends by suggesting potential directions.
What makes it different than other search engines?
This open AI model uses a specific technique known as the “attention mechanism” to focus on more specific, easier-to-comprehend chunks of data, filtering out unnecessary information. So if someone were to search for something with a possible multitude of answers, it would select the one most likely to satisfy the user as the final output (Quantified Strategies, 2023).
Drawbacks of ChatGPT
As with any tool traders use, there are disadvantages and benefits to using Chat GPT. Although it can be a helpful tool and give you some ideas, it cannot generate a better trading strategy than you could come up with, as its knowledge is more limited and less current. Artificial intelligence is still relatively new and not yet on par with the knowledge, experience, and intuition the human brain offers.
AI is remarkable, but it hasn’t surpassed the human brain yet. ChatGPT can answer simple queries and write flawless code. Yet, it can’t think or use experiences like humans to draw the best conclusion.
That said, it can help you with backend analysis to improve your trading strategy. ChatGPT applies fundamental analysis, pulling insights from various media sources, like Instagram or financial news. This can keep you updated on possible changes. Additionally, this AI can perform sentiment and technical analysis on any potential investments through further data extraction and coding.
Risks associated with using AI
One way to think of AI is as a student rather than a mentor. It can provide astute information, but it also can miscommunicate information, experience bugs, and demonstrate a lack of understanding regarding the markets. But don’t let this discourage you from using AI. Just be more cautious and don’t over-rely on its results.
Also, some AI tools have limitations in the data they provide. Their data isn’t always up-to-date, and they can’t always show the full picture in real-time like some search engines. Markets constantly change, and AI might not always keep up with these changes in real time. Therefore, it is up to the user to monitor its performance and make sure it’s not generating information based on outdated data.
AI can also come to conclusions without showing you how it arrived there, so you may need to retrace your steps and see if the answer provided makes sense or if it’s a bug in the code. Trading is like math; always check your work before finalizing your answer.
Learning to work with AI, not against it
Resisting AI is like opposing evolution. In trading, akin to natural selection, those who adapt succeed and those who resist fail. AI is the future. It’s wise to learn how to use it to your advantage.
A good way to dip your toe into the AI world is by using it as a sounding board for ideas you already have. ChatGPT can help tweak or enhance your concepts, leading to better ones. As you familiarize yourself with it, you’ll gain confidence, perhaps even allowing it to execute trades (after backtesting it, of course).
Use ChatGPT to validate your trading plans. Like a study guide for a test, it doesn’t give all the answers but can help you prepare. If you’re into crypto, you could ask it to generate a profitable long-term investing strategy. Then, compare its findings with your current approach.
In sum, ChatGPT can be a valuable ally in trading if used wisely. It can create indicators and algorithms, predict market trends, or fine-tune existing strategies. But, be vigilant about possible code bugs and outdated models before fully relying on its data.
For optimal use, be clear and precise about what you need from it. And remember nothing is guaranteed in trading. So, cover your bases by backtesting the code and even forward testing it in a trading simulator so your risk is as low as possible.
Insights on ChatGPT and AI, in general, are evolving rapidly, so expect another blog topic on this in the future. For more insight into your trading journey, visit Trade Ideas today.
References
Create a Profitable Trading Strategy Using ChatGPT – Dave Mabe