Artificial Intelligence Versus True Wisdom
Artificial Intellegence In Trading Can Be Useful, But Remains Dead Last In The Infinite Abyss of Technoical Analysis, According To My Way Of Thinking.
I have been asked what is my position on using Artificial Intelligence for trading as though AI is something new and provides new hope for mankind. So much so there is now a serious endeavor to make it an organized religion.
But AI is nothing new. Perhaps the earliest formalization of AI in trading was Technical Analysis pioneered by Jesse Livermore and developed into an infinite array of systems that could be back-tested and fine-tuned.
But backtesting is not a reality. Slippage, execution, and black swan events are not accounted for. Numbers can give us a representative idea of the past, but it is not the past. Just as virtual reality is not reality.
While technology changes, AI in the marketplace is simply TA on steroids.
For example, while new technology such as High-Frequency trading on top of Quantitative Trading provides an edge and hence better results for a time, this edge eventually disappears because the use case is limited plus it loses effectiveness once other market actors learn of it. Further, since past performance does not guarantee future performance, a catastrophic event can turn into a catastrophic loss without sound Money Management baked into the system.
In the marketplace, Money Management trumps Fundamentals and Fundamentals Analysis trumps Technical Analysis. There are many consistently successful traders who have no idea what Quants are and do not require High-Frequency trading for their consistent trading success.
Artificial Intelligence in trading can be useful, but remains dead last in the infinite abyss of Technical Analysis, according to my way of thinking.
Fundamentals trump Technical every time. But learning fundamentals are hard. Each market is unique.
Money Management is the easiest to learn yet the most difficult to execute. In that sense, AI may help impose a discipline. But what is needed is the discipline and not the AI. With discipline you are not locked into an algorithm or whatever else is out there. With patience, you wait for the next big move and pounce! There may be artificial intelligence, but artificial instinct is lagging far behind. This is a shortcoming of AI, but a strength for truly great traders.
So let’s get back to the statement of faith by the Church Of AI, “At some point, AI will have God-like powers and that is what our ideology is based on.” Good Luck Being God. Houston we have a problem.
The false proposition Church Of AI is that logic trumps dogma. To use their own words, “The Church of AI is the perfect alternative to faith-based religions because we were founded on logic rather than belief.”
The religion of the Church of AI is based on a belief in AI and when this presupposition is subjected to logic, the logical conclusion is, “As AI systems start programming other AI systems, how long will it take before AI becomes omnipresent, all-knowing and the most powerful entity on Earth? It is not going to take long.”
The Church of AI “embraces science” with no apparent limitations. While science can be useful, science is never true. Science constantly changes.
The Church of IA recognizes the limitations of human intelligence created in the image of the logos (or logic of God, in the beginning, was the Word) but sees no limitation in artificial intelligence. Yet, if you hit the Learn More button on the website you get the message, “THIS PAGE DOESN’T SEEM TO EXIST. It looks like the link pointing here was faulty. Maybe try searching.”
By default, the Church of AI imitates presuppositions revealed in the Scripture but in a skeptical way. Rather than recommend “maybe try searching”, Scripture uses the imperative to search. And actually instructs where to begin the search with an imperative command should.
“If any of you lacks wisdom, you should ask God, who gives generously to all without finding fault, and it will be given to you.” James 1:5 NIV
“Ask and it will be given to you; seek and you will find; knock and the door will be opened to you. For everyone who asks receives; the one who seeks finds; and to the one who knocks, the door will be opened.” Matthew 7:7,8
Proverbs reveals the premise of the Church of AI is foolishness.
The fear of the Lord is the beginning of knowledge, but fools despise wisdom and instruction. Proverbs 1:7 NIV
And puts earthly wealth in the proper perspective.
“How much better to get wisdom than gold, to get insight rather than silver!” Proverbs 16:16 NIV
Scriptures also reveal where to conduct your search, the logos, to enable you to reasonably begin your quest for Wisdom.
“All Scripture is God-breathed and is useful for teaching, rebuking, correcting and training in righteousness so that the servant of God may be thoroughly equipped for every good work.” 2 Timothy 3:16,17 NIV
How do we get this Wisdom? Scripture has over 2,000 verses about money. We are created in the image of God. And He reveals himself in a way we can understand.
“The fear of the Lord is the beginning of wisdom, and knowledge of the Holy One is understanding” Proverbs 9:10 NIV
Hope this helps in your quest for trading wisdom.
UGLY OLD GOAT
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