AI Stock Picker: How Traders are Using AI to Pick Profitable Options | INVESTEDMOM
Being an investor in 2023 comes with a generous level of stress due to the current economic downturn. A beginner trying to learn the basics may find themselves overwhelmed by the extreme volatility of the green and red lines they see on their screen.
Also, since we’re technically operating in a bear market (S&P 500, Dow Jones Industrial Average, and Nasdaq Composite entered bear markets in 2022), it can be difficult to know which stocks to choose that will hopefully produce satisfactory gains.
"Investors seem to be in a wait-and-see mode, looking for more clear indicators to give them confidence about the future direction of the market one way or the other" - Rob Haworth, Senior Investment Strategy Director at U.S. Bank Wealth Management
With the introduction of ChatGPT and its massive popularity, many tech-savvy investors have turned to the OpenAI tool for financial advice.
Artificial intelligence, machine learning, and big data aren’t exactly new to the investment world. We’ve had, for example, AI robot advisors for years, but with the massive progress artificial intelligence has made recently, it makes you wonder, “How beneficial has artificial intelligence been for stock picking?”
Exploring the Limitations of AI for Stock Investing
Although AI tools, such as ChatGPT and Google’s Bard, can be great for writing a poem, learning to tie a knot, or even coding simple applications, but can they be effective at picking stocks?
ChatGPT and its counterparts come with many limitations.
They don’t have current data: AI language models like ChatGPT are trained on large data sets acquired from various sources, but that data is limited to 2021. Investors rely on current data to effectively judge which stocks would be profitable in the short or long run.
It may present inaccurate information. Many AI tools commonly face ‘hallucinations’, which means they may make up information just to provide users with a suitable answer to their questions. For example, it may misrepresent growth trends, twist stats, and misquote financial records.
Having current data and correct information is vital to invest. Blindly relying on stock picks proposed by AI could have serious consequences.
We know that ChatGPT and Bard weren’t designed as investment tools. They were designed to give generated answers to specific queries users may have, but they aren’t a replacement for subject matter experts.
I asked ChatGPT, “What are the best stocks to pick for investing in the stock market?”. The only real advice it offered was to “consult with a qualified financial advisor” or “do your own research before making any investment decisions.”
That’s a responsible take from AI, to not suggest relying on an algorithm for making critical financial decisions, but it isn’t really a helpful one. So, what is AI good for when it comes to stock picking?
How Investors are Using AI to Get an Edge Over the Stock Market
ChatGPT and Bard may not be able to offer any practical financial advice to pick the best stocks for you but that doesn’t mean there’s no use for these platforms.
AI investing tools are built with algorithms that can help you analyze large data sets and perform a detailed financial analysis of your desired stock. Stock market investors are currently using these tools as AI stock pickers for:
Generating investment ideas
Analyzing large data sets
Conducting financial analysis
Checking compliance and assessing risks
Let’s dive a bit deeper into how this looks.
Generating Investment Ideas
When artificial intelligence became available to the public, many people often used it to generate ideas relevant to the industry they operate in. For us investors, we’re likely to use it for investment ideas.
ChatGPT and Bard are great for generating a large list of investment ideas to help you find potential stock picks that might be worth looking into. You can also ask these tools to arrange the information in an Excel format, which enables you to filter through the list and highlight the stock options you’re interested in. AI obviously can’t magically tell you the stocks that will generate massive gains, but it can, for example, give you a list of the top stocks in a specific sector. You could also ask which stocks experts most recommend or to align stock picks with your personal trading strategies, such as having it list 10 of the best value-based stocks.
Analyzing Large Data Sets
ChatGPT can be used to analyze data sets to discover underlying patterns, which may otherwise be very time-consuming when done manually. Although we wouldn’t recommend relying solely on its conclusions, many investors use ChatGPT’s analytical abilities to scan through existing data that they have picked out. This improves the efficiency of the stock pick as it allows you to pick up on any gaps left by your initial research.
Conducting Financial Analysis
Since AI is able to analyze large data sets quickly, it can carry out a detailed financial analysis in a matter of seconds, making it an invaluable tool for researching the best stock picks. AI algorithms can streamline research by identifying past trends and patterns in the stock market and then making financial forecasts. This type of analysis is called predictive analysis, in which the AI can be trained to predict and exploit future stock prices to help you make better stock picks. Also, since the data can be seamlessly exported to Excel, it can help create financial models and visualize the data.
Checking Compliance and Assessing Risks
Investing in the wrong company can be risky business, especially if they’re involved in shady practices. For this reason, investors should take prior caution when picking a stock for their investment portfolio.
Fortunately, artificial intelligence can read through an organization's legal documents and let you know whether it complies with laws and regulations. This can be done manually as well, as you’ll easily be able to find a company’s public records, but with AI, you can speed up this process exponentially. Apart from compliance, you can also use it for risk management by identifying risks associated with a certain stock and then developing strategies for risk mitigation.
How to Start Investing with an AI Stock Picker
We’ve determined that ChatGPT and Bard aren’t useful stock pickers, but there are other AI models available to you that are created specifically for investment purposes.
The main AI stock picker we’ve found is Danelfin AI.
Let’s look at how you can use it to choose the best stock picks for your portfolio.
1) Determine Your Goals and Objectives
Knowing what you want to achieve from your stock picks will be the first stepping stone to using an AI stock picker effectively. It can be a good idea to assess your current financial situation and then consider what goals you want to set.
Do you plan on making the highest profit in the short-term by taking advantage of market trends? Or would you rather have a sustainable portfolio that gives you 3-5% returns on your investments over the course of several years?
Setting goals will guide your investment strategies and help you choose between tactical and strategic investing and what the right one would be for you.
2) Choose a Package That Suits Your Needs
Danelfin offers different packages according to your needs, and they even have a free plan for beginners. As with anything, you get what you pay for, so if you want to fully utilize the power of AI stock picking and get weighted averages of the best stock picks, we’d advise you to opt for one of their paid plans.
3) Make Your Stock Picks
AI investment apps like Danelfin won’t invest for you, but they do give you an idea of some great stock pick ideas. What does that look like, though?
Fortunately, Danelfin makes it really simple to determine which stocks are the best, meaning which one has the lowest risk and the highest profit. It does this by implementing its AI to analyze 252 US markets as well as the latest 500 European markets and rate them using AI scores or ‘alpha signals’. These scores are metrics assigned to a stock pick to indicate how well it’ll perform and its probability of beating the market within the next 3 months. The higher the score, the better the pick.
4) Analyze Your Chosen Stocks
If you take the opportunity to explore Danelfin’s AI in detail, you’ll be sure to find some profitable stock picks. - but how would you know they’re profitable?
After you’ve picked some promising stocks, you can use tools such as ChatGPT or Bard to analyze your stock pick. Although they may not be able to give you clear advice on whether or not you should invest in the given stock, they can provide you with some valuable insights and provide important information.
Creating a Sure-Fire Investment Portfolio for Monumental Gains
Finally, with all that said and done, you can go ahead and develop an investment portfolio. Remember, AI tools come with many limitations, such as providing inaccurate information and having limited, outdated data.
Fortunately, companies such as Danelfin came out with their own AI language model designed specifically for stock market data with the purpose of helping investors make better stock picks.
Now you’ve gained a much better understanding of AI stock pickers, their limitations, and how to use them to their full potential. However, when it comes to making a sustainable portfolio over time, having a financial advisor grants you insight into your investment decisions and makes for a better, more personalized strategy to implement to achieve your financial goals.
Interested? Book a call with Invested Mom today for a 1-on-1 coaching session, and create your investment portfolio today!
Meet the Author:
Inge was born and raised in Cape Town, South Africa, and moved to Canada in 2010 looking for a better life. She always had an entrepreneurial spirit and started her first side hustle when she was 9 years old – selling fudge at school during lunch breaks.
It wasn’t until much later that she realized that saving isn’t enough to get ahead. She was always very interested in real estate, but saving up for a down payment was grueling and slow, and the demands of life kept getting in the way.
She started investing in herself and upgrading her skills while learning how to invest. She quickly became debt free and compounded her money at a staggering rate.
It wasn’t until she became a coach that she realized how significant an impact she can make in people’s lives by sharing her journey, learnings, and processes.
So here she is, advocating for everyone who is invested and wants to build their wealth, especially the mommas!