This is a simplified version of my AI driven trading system. It's a research driven design. The goal is to take the best ideas, test it with AI and integrate it with my trading strategy.
When you think of the trading process, the traders are always predicting the future using whatever information they have available. This is exactly what AI models are capable of, but at a much faster and larger scale.
A decent trader might be able to analyze a dozen piece of information. AI model can handle hundreds, or even thousands or more, and it can make a prediction in seconds. In machine learning, we call these piece of information features in a dataset. Each feature represent a distinct quantified piece of information.
The biggest challenge of AI trading is that the market is very noisy. These noise in data makes the model very hard to train and prone to errors.
Researchers have studied the market long time ago, and they came to conclusion that the stock price is geometric random walk, which is a fancy way to say that the price movement is unpredictable. So no matter how much data you have, you can't predict price movement reliably.
AI model is terrible at handling new information that fall outside of its training data category.
The real world is very complex. A fully capable trading AI needs to understand the entire world and its meaning and relationship. Take Covid-19 for example, when the virus slowly spread around the world, no AI model can predict its impact on the market (the market crashed). Human, on the other hand, can make some common-sense induction reasoning and use proper strategy to prepare for the worse.
But don't get discouraged. If you narrow the task of AI, it's actually pretty good at it. For example, you can let AI predict the sentiment of a sentence, next likely move by a competitor, etc. But all these needs specialized training.
Maybe you still have doubts on the market efficiency theory. But remember that, it's a game played by billions of intelligent beings, including both humans and machines. The sum of their intelligence is far greater than any single individual. You might be able to beat the market once awhile, but the real success comes from consistency.
From last several years of trading, I have learned a few lessons.