5 Ways AI Can Be Used to Create Cryptocurrency Trading Strategies
AI can do predictive analysis, execute automated trading, carry out risk management, analyse market sentiments, and portfolio management.
Key Insights:
- AI can be used for making price predictions.
- Automated trading bots can help you execute blazing-fast trades.
- Several platforms use AI to analyze market sentiments.
- Finally, with AI, traders can do much better portfolio analysis with real-time insights.
Artificial Intelligence is a very powerful tool for data-intensive tasks. For crypto traders, it is no less than a boon.
Traders can use it to automate their trades and use the data processing power of AI to create top-performing strategies, identify early entry and safe exit points, and accurately analyze broad market patterns.
Here are five powerful ways to level up your trade with the power of artificial intelligence.
1. Predictive Analysis
Artificial Intelligence leverages the power of machine learning to easily identify chart patterns and indicators and predict the future action of price with higher accuracy than humans. The ability of AI to identify patterns is far superior to that of most humans. A crypto trader can leverage AI tools as simple as ChatGPT to feed technical charts and get AI to analyze them.
To demonstrate how users can use it better, we fed the Dogecoin weekly chart below to ChatGPT.
Within a few seconds, we got a reply which has been summarised below.
- There was high volatility in the market, which was true as memecoins generally tend to be volatile.
- There was a lack of strong directional momentum, which was true for the given data, as Dogecoin only rallied in 2024 after a long gap of 3 years.
- ChatGPT also gave a warning to be cautious as RSI was relatively stable, and MACD lines were about to show a negative divergence.
Though there was a lack of a clear buy/sell signal, the data that was obtained can be sufficient to help your trading experience.
2. Automated Trading Bots
AI bots can help you automate your trade with pre-filled instructions. Based on your trading style, you could program the bot to enter and exit trades based on some pre-defined signals. Not only your entry and exit will be clean, and accurate, but you will also have far more resilience and, hence, better profits in your trades.
AI trading bots could also be used to maximise or minimise any one single factor, such as profits or risk.
A single bot can monitor broad markets to identify emerging trends, chart patterns, and more. Based on certain pre-programmed inputs, these bots can automatically execute trades, book profits, or cut losses.
Such automation makes sure that you never lose market opportunities.
3. Risk Management
We humans often tend to ignore small risks that blow up disproportionately in our faces. This is a common issue, especially in crypto trading. Most crypto traders suffer from inconsistency that wipes out their entire month's profits with a single loss.
Artificial intelligence provides a way to minimize those losses so that you retain these profits.
Traders just need to set alerts in their crypto trading with AI bots and programs or integrate AI modules in their trading charts. These systems would alert them and possibly liquidate their trade before it goes severely wrong.
4. Sentiment Analysis
By using Natural Language Processing models, a trader can detect the overall market sentiment in seconds. NLP uses word and language patterns and analyzes data within a few minutes.
Traders can use it to analyze thousands of tweets, CMC comments, and article headings in news websites and understand the overall sentiment of the market. An NLP model can even show a composite score that traders could use to quickly understand market sentiments.
A well-known example of such an application is the Bitcoin Fear and Greed Index. This index is a well-known metric used by thousands of traders, analysts, and even us to gauge market sentiments.
5. Portfolio Management
Managing a portfolio is a very delicate task due to thousands of constantly changing factors. Understanding the combined effect of these factors might be an arduous task for humans, but it is surely very easy for artificial intelligence.
The main task of any AI program is to process data and gain meaningful insights.
In the case of portfolio management, AI can be the most potent tool. It can easily balance thousands of factors, summarize data, and check the suitability of a portfolio with the owner.
On top of all, it can take data from continuous data streams which would help crypto traders and investors to get access to real-time data.
Disclaimer: This article was written to provide guidance and understanding. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.
