Today, technological advancement is leading the world with a huge amount of data. Back in 2018, there were 33 zettabytes of data which is expected to grow to 175 zettabytes till the year 2025. Looking at the data present in the world, no doubt, machine learning finds a way to interpret this data to provide useful information.
Similarly, the trading market has so much data that only data analytics and machine learning can decipher. Simply put, both these things compliment each other in the most favorable manner. Imagine how many opportunities can open up and operational costs can be reduced?
The Two Phases Of Trading
- During the first trading phase, which is research, the huge amount of available data is analyzed and evaluated to achieve a great strategy. The analyzed information achieved in this phase is majorly exploratory.
- At the time of the second phase, which is execution, the same type of techniques and tools are utilized to assess the market changes and rapidly respond to them. While in the research phase speed didn’t have a critical impact, for execution, speed is crucial for achieving success.
Machine Learning In Trading
Even if assessed traditionally, data analysis or machine learning is a part of trading. Every trader would analyze the annual reports of the corresponding company. Nobody would blindly go trade with a company they don’t know. However, earlier, these tools used to be minimal and cumbersome such as spreadsheets. With advanced analysis tools, all this annual data can be converted to useful insight in minutes.
If you look at it, data involved in trading today is just too much. Anything happening around the world can impact the economies, reduce stock prices, and affect traders. Any sensitive news, bank meetings, and sometimes even social tweets can lead to lower stock prices. In a situation like this, it is just impossible for a human to process all this information. But, not so much for the machine.
This is where machine learning comes in. Machines are although not perfect, still have the ability to process more information than a human mind. The machine learning algorithms can be further taught to learn from the growing trends and act accordingly, which again reduces the hassle of a trader.
Machine Learning Transforming Trade
- It is a known industry norm to close the trade at a favorable price condition. The algorithms of machine learning can analyze the data offered by humans to slice, route, and evaluate trade orders so that cost impact and slippages can be minimized.
- The Natural Language Processing can help the traders learn and analyze data that is not structured such as sentiment analysis-based strategies for trading.
- Finally, machine learning is a pathway to finding new information. Today, we have the power to find out the footfalls of the supermarket and analyze its quarterly sales before the actual calculation.
Machine learning simply provides a medium to the human traders for effective trading information. Advanced tools and information are actively moving forward to manage risks, reduce trading costs, and increase efficiency.