How can AI Boost Momentum Trading?

Capital Markets CIO Outlook | Monday, October 26, 2020

With the incorporation of AI, traders are looking forward to maximizing their returns through momentum trading. 

FREMONT, CA: Investors are increasingly using artificial intelligence (AI) for trading purposes. The above trend can be attributed to the massive growth of data in the past few years. The immediate access to data is motivating the investors to participate in high-frequency trading such as momentum trading. While some investors might prefer the adage of buying low and selling high, AI offers them the right opportunity. Conventionally, traders assumed that the existing trend would continue and be invested in accordingly. While a trend may alter its course at any point in time, advanced analytics capability can significantly enhance the predictability of the trends in capital markets. 

Traders use momentum indicators to determine the momentum of a particular asset. The momentum indicators include graphic devices that indicate an asset’s rate of price change. Thus, traders can know the direction of the movement of an asset’s price. As this feature may offer a small degree of visibility into a stock’s performance, it might not be enough to indicate the longevity of the existing trend. AI can contribute to the traders’ quest by analyzing and generating insights from the vast repositories of data. 

The massive availability of data offers an opportunity for traders to extract significant trading insights. However, the swift nature of momentum trading eliminates the chance for data analysis. By the time traders will accomplish data analysis procedures, the trend would have already changed. Thus, momentum trading was being guided by the traders’ instincts up to a certain degree. With AI, high-speed data analysis can fetch actionable insights for the traders, enabling them to engage in momentum trading through better decision-making capabilities actively.

AI offers a massive opportunity to the traders eyeing momentum trading. The capability is certainly enhancing the predictive capabilities of the traders when it comes to momentum trading. 

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