Automated Trading with AI: Read This Before You Start
You are doomscrolling and you come across an enticing short ad that promises you can retire early by using automated AI trading. You even click through the ad to find out the details. Many AI videos warn about how people are making millions from AI, but if you wait too long, you’ll be missing out on this modern-day gold rush.
But consider this: even if AI can beat the market, should you trust it with your money?
AI’s Capabilities
People with a lot of money are already using AI-based automated trading. The AI engine is emotionless, which is crucial when trading any asset. The AI helps them sort through market noise, test trading ideas, and spot unusual activity. Deloitte reports that many institutions use it through their entire trading operations.
But the reality is that markets are messy. It shifts and reacts to news and all with seemingly zero logic.
Even a great AI model can struggle when the ground moves beneath it. Some models perform beautifully in testing, only to fall apart when new data shows up. That’s called overfitting. It’s like a student who memorized last year’s test instead of actually learning the subject.
AI tools are powerful. They can help. But they rely on history. And history doesn’t always repeat.
You Don’t Have Their Resources
Let’s be honest. The big money spends millions on these systems. They have the capital to hire top talent, pay for exclusive data, and back test everything over decades. Their tools are geared towards the institutional investor.
Suppose you legitimately develop an awesome AI trading tool that produces seriously outstanding results. Would you reveal this to others? Trading systems are notorious for producing diluted results, the more people discover a winning formula.
Even if you decided to sell your groundbreaking system, would you sell it for a measly $20 per month to the average retail investor, or would you target the institutional investors that are willing to pay a much higher premium?
Which begs the question: if someone is selling to retail investors, is it because the effectiveness of the system is now in question? Effective trading systems don’t last forever. The quality of the signals diminishes over time. Traders call this alpha decay.
So, what are they really selling?
More often than not, they are selling a dream, the dream that you can ditch the nine-to-five for a luxurious lifestyle and join the ranks of the rich and famous.
When a Win Feeds the Risk
Here’s a sneaky danger. Sometimes AI tools actually work at first. You might see a few great trades, and back testing performs better than you ever expected.
That early success builds confidence. You start trusting the system more. You take bigger trades. You lean in.
But then the market shifts. The model doesn’t adjust fast enough. Suddenly, you’re losing — and you don’t know why.
Humans are greedy, and that greed can lead you astray. You gain a false sense of security with automated tools, and then you believe that you’ll hit the motherload. So, you double (or sometimes triple) down, and you take a big hit with your portfolio.
The real risk isn’t in using AI. The risk is trusting it too quickly, without understanding the limits.
When Boring Is Better
Want a different approach?
Look at index funds. Simple ones that follow the S&P 500. No signals. No secrets. Just steady exposure to the overall economy.
Over the last fifty years, the S&P 500 has returned about 10 percent per year, before inflation. That’s not exciting. But it works.
With index funds, you’ll have no need to make any predictions, which can help you sleep better at night.
This kind of strategy doesn’t avoid all risk. But it avoids the big, self-inflicted ones. And that’s a win too.
Ask Yourself This
AI might beat the market. It has before. But ask yourself one thing.
If the AI system doesn’t work, can you afford the losses that you’ll sustain?
The answer is very likely to be no. You have bills to pay, and the AI engine cares little for your financial situation.
While we are on that topic, please remember the golden rule of investing: you are responsible for all the trades generated by the AI. Go ahead and blame the AI engine if you want. But you are the one who made the decision to use it.
Conclusion
You’ll hear people state that the information in this article is bunk and that automated trading with AI works and it’s okay to have counter points. AI trading may well indeed be the future and may even work. But until we know for sure, it’s wise to put your money in something like an index fund that has proven results.
