Artificial Intelligence (AI) has found many use cases since its inception, including crypto trading. Like other use cases, leveraging AI will help make previous complex trading processes seamless and faster to execute.
Now AI has specific methodologies for enhancing crypto trading including analyzing and learning from previous trade data (machine learning), advanced machine learning using neural networks, complex algorithms, etc.
In this piece, we’ll explore several applications of AI in crypto trading, so let’s dive in!
#1. AI in Predictive Modeling/ Market Analysis
Most AI applications in crypto will subserve this function in a way. Predictive modelling means forecasting prices, market patterns and trends, in this case, with crypto.
While trading these volatile digital assets, this AI-powered feature could come in handy to minimize losses from unstable crypto prices. By forecasting future prices and identifying market trends and patterns, crypto investors stand to gain more profit from trading.
AI methodologies applied in predictive modelling include neural networks, linear regression, decision trees, random forests, etc. Tools like spaCy and NLTK enable AI-powered market sentiment analysis, trend analysis and pattern recognition.
#2. AI in Crypto Trading Risk Management
Risk management involves an AI-driven identification and mitigation of potential risks of trading crypto. AI executes complex analyses to automatically set stop-loss orders and other measures that minimize the risks.
Tools like Quantlib and Backtrader utilize genetic algorithms, machine learning-based risk models, expected shortfall analysis, etc for risk management.
#3. Portfolio Optimization
Another major application in crypto is the AI-assisted optimization of investors’ cryptocurrency portfolios. Based on simulated data from different machine learning-based portfolio optimisation models, AI powers automatic portfolio adjustment and asset allocation while minimising risks simultaneously.
Check out tools like PyPortfolioOpt and QuantConnect for crypto portfolio optimisation with AI.
#4. Trading Bots
These are automated trading systems powered by AI. Accordingly, they execute trades without human interactions, at the best possible time for the crypto trader.
As stated in our previous article, “Automatic trades on trade bots execute faster than manual trades. Notably, bots hold the user’s funds until market conditions are optimal for the trade. Executing the trade at such a window minimizes the chances of slippage for the user.”
Bot trading incorporates AI-powered technical analysis, genetic algorithms, machine learning-based trading strategies, etc. Check out tools like CCXT, Backtrader and Hummingbot for bot trading in crypto.
In Conclusion
AI assistance in crypto enhances objective decision-making, automated trading, improved efficiency, 24/7 monitoring, etc, while minimising risk.
Notably, the future holds more avenues for hybrid AI-human trading, quantum AI features and other futuristic AI applications.