Are computers better traders than humans?
It is often said that computers can outperform humans in almost any task, but is this true when it comes to trading? It's a commonly accepted notion that computers are more precise and efficient than humans, but that doesn't necessarily mean they make better traders, as both have their own strengths and weaknesses. It's true that computers can crunch data and make decisions much faster than humans, but that doesn't mean they can always make the best decisions.
Computers are limited by the algorithms that are programmed into them, and these algorithms cannot account for all the factors that affect the financial market. Even AI cannot predict the future and cannot react to unexpected events like humans can. The AI trader is only as good as the data it holds. AI algorithms are usually based on a limited set of data points and can only make decisions based on what it has been programmed to do. This means that AI can be unable to identify important patterns and trends that may be important in the long-term.
Humans, on the other hand, have the advantage of being able to think outside the box and make decisions based on intuition and experience. They can recognize patterns and understand the broader context of the market, something that computers cannot do. This can give them an advantage in situations where there is a lack of clear, objective data, or where the data is difficult to interpret.
Human traders:
Strengths
Ability to think outside the box and make decisions based on intuition and experience
Ability to recognize patterns and understand the broader context of the market
Ability to adjust strategy based on changes in the market
Weaknesses
Limited access to large amounts of data
Prone to emotional decisions
Slower decision-making process
Computer trading:
Strengths
Ability to quickly analyze large amounts of data
Ability to make decisions accurately and quickly
Reduced risk of emotional decisions
Weaknesses
Limited by the algorithms that are programmed in
Cannot predict the future or react to unexpected events
Unable to interpret data in a more nuanced way
Ultimately, the best approach to trading is to use a combination of human and computer-based decision-making, in order to take advantage of the strengths of both. This is true not only in trading but in many industries from autonomous vehicles to medicine and robotics. Combining human knowledge and computers’ strengths always leads to far superior outcomes than just humans and computers on their own.
When humans and computers collaborate together we have: -
Increased productivity: By leveraging computers to handle mundane and repetitive tasks such as risk calculation or order execution, human traders can be free up to focus on more complex and creative tasks such as creating trading strategies.
Improved accuracy: Computers are capable of processing large amounts of data accurately and quickly, reducing the likelihood of errors caused by human error.
Cost savings: Automated processes can increase the execution speed and reduce trading costs while free up human traders’ time that is spent at the computer screens.
This is why we created DARA, Decision-Aiding-Robo-Advisor to help human traders with decision-making by providing objective data about their trading strategies. With DARA app you can test your trading strategies on a large amount of historical data, optimize your strategy parameters such as best stop-loss and take-profit locations and send you actionable signals for your strategies with all the stats such as expectancy, hit rate, probability and confidence score.
With DARA we’re unlocking the future: Human-Computer Collaboration for Better Trading!
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