There is no single way to make trades in the stock market. Each investor approaches the market in a slightly different way. Some traders buy stock based on news stories, some buy stocks from companies that they admire or that have products that they like. Other traders look at fundamentals, at balance sheets, or do technical analysis. Regardless of the preferred method of trading, each individual investor has his or her own emotions affected the trades that they make. Whether the trader is making decisions based on fear or excitement doesn’t matter, what matters is the effect that these emotions have on the market.
Applying artificial intelligence to the financial industry takes a different approach entirely. Rather than focusing on individual characteristics or information, algorithmic processes are used to analyze human behavior and decision-making as a whole. Algorithmic analysis of financial markets is not about placing individuals in boxes, it’s about placing all people into the same box and then interpreting their reactions and interactions.
In order to make reliable forecasts of what future stock trends are likely to be, both sides of the market must be accounted for. Algorithmic trading combines analysis of stock trends and fundamentals with market noise and human emotion to output highly accurate market predictions.