Insights into AI Stock Trading

"You can trade like Warren Buffett,

I mean, let the AI copy his strategy automatically."

Toby Wu
^{Business Development Manager, Moomoo Australia}

Image: Toby Wu, the Business Development Manager at Moomoo Australia. Created by Xin Wang.

Image: Toby Wu, the Business Manager at Moomoo Australia. Photoed by Xin Wang.

Perhaps you've heard of Warren Buffett, a legendary investor known for his unparalleled success in stock trading. Countless novice investors study his investment portfolio and trading points, regarding it as a stock trading textbook.

Interactive image: Warren Buffett's Portfolio in Q2 2023. Image source: https://www.reddit.com/r/dataisbeautiful/comments/15sl23f/oc_buffetts_portfolio_in_q2_2023/.

When Buffett invests in a company, it means he has conducted thorough research on the company and is bullish about its future prospects. For ordinary investors, by following experienced investors like Buffett, you can save a lot of time and effort that would otherwise be spent on extensive research.

Before the advent of AI stock trading tools, copy trading was not easy. Firstly, it was challenging to access experts' trading information. Secondly, stock price fluctuations often occur within seconds, while manual trading operations often have significant delays in timing.

With the emergence of the AI trading era, it has become effortless for individual investors to replicate Buffett's investment strategies.

"You just need to use AI-driven copy trading mode, set the trading amount, then you can directly replicate Buffett's investment portfolio," explains Toby Wu.

"For novice investors, AI support makes following simple and effective." Toby Wu is the Business Development Manager at Moomoo Australia, a stock trading platform under Futu Holdings Limited.

Discussing his interest in stock trading, Toby mentioned that it began during his school days. He humorously noted that he has been trading for over a decade, starting from the day after his 18th birthday.

Image: Moomoo Logo. Image source: https://en.wikipedia.org/wiki/Moomoo_(company)

Image: Moomoo Logo. Image source: https://en.wikipedia.org/wiki/Moomoo_(company)

Traditional Stock Trading: Insights from Toby Wu

To make more comprehensive judgments, investors often combine multiple different trading indicators to assess companies.

Before AI trading was available, Toby meticulously reviewed financial statements, researched company backgrounds, and analyzed financial metrics such as the Price-to-Earnings (PE) ratio, Price-to-Book (PB) ratio, and Price-to-Sales (PS) ratio.

Image: Meaning of the term, Price-to-Earnings Ratio. Image source: https://www.investopedia.com/terms/p/price-earningsratio.asp

Image: Meaning of the term, Price-to-Earnings Ratio. Image source: https://www.investopedia.com/terms/p/price-earningsratio.asp

In addition to financial data, he also paid attention to news and policy changes in the industry sectors. Toby emphasizes that in stock trading analysis, information and data are crucial. Any minor change can impact a company's value, necessitating a lot of time spent integrating data when making investment decisions.

"Even if an industry shows promising initial growth, abrupt policy changes can lead to the collapse of the entire industry, like the education and training industry in China." Toby notes.

Image: Toby Wu during the interview. Photoed by Xin Wang.

The AI Features in Stock Trading

One of the main benefits of AI in trading is providing quick access to information. If you want to invest in large, stable companies, you can simply ask the platform about the largest publicly traded companies or the most profitable ones. If interested in a specific industry's supply chain, you can also obtain related information through queries.

Image: Meaning of the term, Supply Chain. Image source: https://www.investopedia.com/terms/s/supplychain.asp

Image: Meaning of the term, Supply Chain. Image source: https://www.investopedia.com/terms/s/supplychain.asp

The functionalities of AI in stock trading includes, but are not limited to:

Quickly access data and information:

Simplifies the investment research process and aids in investment decisions.

Generate investment strategy recommendations：

AI can integrate and analyze stock data to recommend investment strategies. For example, the sentiment analysis feature on stock platforms can provide a summary indicating whether the market sentiment is neutral, positive, or negative.

This conclusion may be based on a comprehensive analysis of 20 or 40 different indicators.

Predict stock trends based on historical data：

Some AI tools can also automatically analyze historical data to identify specific stock price trends and use this information to predict future stock price movements.

Toby points out that these AI tools save the time he would otherwise spend manually gathering information and conducting research, thus accelerating his decision-making process.

Toby Wu explains his understanding of AI trading in the video below.

Video: Toby stated his perspectives on AI stock trading. Created by Xin Wang & Zhiheng Yu.

Image: The supply chain & logistics tech market map. Image source: https://www.cbinsights.com/research/supply-chain-logistics-tech-infographic/

Image: The supply chain & logistics tech market map. Image source: https://www.cbinsights.com/research/supply-chain-logistics-tech-infographic/

Image: all of the different parts that used in cars. Image source: https://www.vecteezy.com/photo/29563028-an-image-of-all-the-different-parts-that-are-used-in-cars

"When electric vehicle sales perform well, I usually need to buy research reports to study companies throughout the industry chain, which is both time-consuming and costly.

But now, I can directly use AI tools to inquire about specific components, such as which companies manufacture tires and brake pads.

"This feature allows me to discover potential investment opportunities in supply chain companies that often unrecognized in the market," Toby added.

Toby also mentioned that today's stock trading platforms can help him manage risk and provide early warnings through AI.

Specifically, platforms can alert him when they monitor unusual market fluctuations, such as a sudden large buy-in of a stock or rapid significant price changes. This feature enables timely investment opportunities and helps in avoiding potential risks.

"AI trading tools allow ordinary investors to use more advanced investment strategies and more effectively mitigate risks in the market," Toby expressed.

Challenges and Costs of AI Trading

However, the accessibility of AI tools remains an issue for individual investors. Many professional AI trading tools and software available on the market are costly, excluding many who cannot afford them. Toby mentioned that he prefers using free AI tools available on stock trading platforms instead of paying thousands of dollars in annual fees.

Image: The high fees of professional AI trading tools. Screenshot from: https://www.trade-ideas.com/pricing/

Image: The high fees of professional AI trading tools. Screenshot from: https://www.trade-ideas.com/pricing/

"The cutting-edge AI technology is always in the hands of financial institutions. High cost barriers usually do not burden large institutions that can afford these costs and are willing to invest in more professional technology," Toby explains.

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Institutional trading involves more complex strategies, such as hedging and arbitrage, beyond human execution's scope. AI can quickly respond to minor stock price changes and execute thousands of transactions. Although each transaction might earn little, increasingly, they can yield substantial profits.

"If everyone, or most people, were to adopt similar AI-driven trading strategies, this could lead to homogenized market behavior," Toby stated.

"The market is always in a state of competition and optimization, thus driving the continuous advancement of technology and strategies."

Toby noted, currently, trading with AI technology offers an advantage. However, if everyone uses AI trading, this advantage would disappear, everyone using AI would be at the same level.

"AlphaGo play against AlphaGo might end in a draw," Toby said.

Image: AI tools VS AI tools. Image source: https://www.eweek.com/artificial-intelligence/generative-ai-vs-ai/

Image: AI tools VS AI tools. Image source: https://www.eweek.com/artificial-intelligence/generative-ai-vs-ai/

Navigating the Risks in AI Trading

Edward Zhou, president of the first AI and Trading club in Australia, Next Generation Trading Club at the University of Melbourne, highlighted the risks and biases of AI tools in trading during a recent interview.

Image: Edward Zhou, the president of the Next Generation Trading Club. Photoed by Xin Wang.

Image: Edward Zhou, the president of the Next Generation Trading Club. Photoed by Xin Wang.

"Although the analysis results of AI can serve as a reference, I won't rely solely on it to make trading decisions," he remarked. "When AI receives false or inaccurate information, it may harm the user's investments."

When making predictions, AI trading tools mainly analyze data collected from the market and the Internet. However, online data is not completely accurate. Some content is subjective and prone to bias, causing the primary risk in AI trading.

"Even if AI is wrong or biased sometimes, people may still choose to believe it. In most people’ s perspectives, those tools are rational and logical," he explained.

Currently, the application of AI is not entirely reassuring. It's better to ensure that AI tools complement human judgment, rather than replace it.

The Future of AI Trading Tools

As technology advances and data accuracy improves, AI tools would become more reliable and insightful. Setting relevant regulations will be essential to ensure AI tools genuinely serve the best interests of their users.

Despite the risks involved in AI trading, both Toby and Edward remain optimistic about its future, expecting it to develop alongside advancements in corresponding management systems.

"In the future, AI technology may become advanced enough to independently identify true and effective trading information. This could significantly change how AI is utilized in investment decision-making," Edward predicted.

"Those of us who were early to adopt AI trading may have the chance to lead the way in the next wave of AI trading advancements." He envisioned.