The Art of Trading: Why Human Emotion still Reigns Supreme

In many ways, trading is an art form. It is a skill mastered through painstaking dedication, often over a lifetime. For traders, their knowledge and the trading strategies they have spent years perfecting are their masterpieces – their own Mona Lisa’s.

But just like in the world of art, artificial intelligence (AI) is a growing force of disruption in trading. With ChatGPT able to digest and analyse vast amounts of information and put forward conclusions, traders are swooning at its potential. Critically, ChatGPT can now even analyse visual data, unlocking the ability to read trading charts and graphs to spot data that might not be spotted by the naked eye.

These abilities raise questions as to where the human fits into the equation. How far should traders rely on this exciting new technology? ChatGPT is undoubtedly a very useful tool but has to remain just that: a tool. It can’t completely take over, and it has its limitations compared to a human trader.

Understanding depends on context 

Firstly, ChatGPT is a matter-of-fact mechanism. Like art, trading is often dependent on a wider view and context of social or economic trends, but AI is limited in this way. Whilst it can process large amounts of data quickly, it doesn’t have a deep understanding of the broader economic, social, and political context that can impact market movements.

The technology is not able to incorporate subjective factors such as personal experience, intuition, and emotions into its decision-making process. While it is important not to let emotions influence your trading too much, contextual understanding and subjective factors are often critical for making informed trading decisions – which evoke gut feeling. If you take this human understanding away, you’re placing all your faith in technology that could fail and might have missed something. It can – and does – get things spectacularly wrong on occasion.

Intuition, on the other hand, is based on an individual’s personal experience, knowledge, and emotional intelligence. Although people may be less good at processing data, intuition can be highly effective in certain situations.

Navigating the unexpected 

Another limitation is that ChatGPT can only process things based on data that it has been trained on, which means it can only look at what has happened in the past and therefore may not be able to adapt to unexpected events or changes in market conditions.

We live in an age of change where the technological revolution and the pace of disruption makes markets increasingly unpredictable. In trading, everyone knows to expect the unexpected. But AI may rely a little too much on what it knows, without thinking about what it doesn’t. With a pandemic, a war in Europe and now the sudden collapse of banks, the last few years have reinforced why technology must remain only a helping hand.

In a similar vein, ChatGPT struggles with unstructured data. While it can analyse structured data such as financial reports and stock prices, it is less proficient at interpretating data and insights in less friendly formats, such as in news articles or social media posts, as accurately as human traders. These are critical sources for trader and present a notable gap in AI’s usefulness, especially in volatile or rapidly changing markets.

Use, but don’t depend 

There’s no doubt that ChatGPT can be highly effective in analysing large amounts of data quickly and identifying patterns that may not be apparent to humans. However, it’s important to consider the potential limitations and risks before making decisions based solely on AI-generated insights.

Traders must remain the artists of their strategies. Much like how graphics tools and software enable artists to experiment and improve, traders must use ChatGPT to elevate their abilities, as opposed to completely automating them.

The level of trust one places in ChatGPT versus intuition ultimately depends on several factors, including the specific task at hand, the quality of the data being analysed, and the level of experience of the individual trader. The best approach is to combine the strengths of both ChatGPT and human intuition by using ChatGPT initially, and then taking its conclusion forward with a healthy dose of scrutiny.

Author: David Shayer, CEO, Vantage UK