The Forex market is the largest attractor for traders around the world due to its huge size and high liquidity. In terms of daily trading volume, it is 25 times larger than stock markets, and therefore, investing in Forex is one of the most popular ways to generate additional income. The size of this market also determines its high dynamics. There are about 10 million traders in the world who choose Forex as a potentially lucrative market. And even if not all of them trade daily, this is a huge number. How to succeed in such a dynamic arena? AI FOREX trading is one of the key factors in gaining a competitive advantage and achieving success. Find out how AI is helping traders achieve better results and what the disadvantages of this new money-making technology are.

How AI Is Different from Other Trading Software

The use of automated trading systems in the Forex market began more than 40 years ago with the simplest algorithms. Over the years, progress in improving AI has made huge leaps. The power of AI makes other forms of algorithmic trading seem obsolete. Its success is explained by the fact that trading bots based on AI are capable of self-learning:

  • Algorithmic trading involves certain rules the trading robot follows that are determined by a developer. It is their judgment that defines what actions the bot will perform and in what case. Therefore, there is no complete automation here, since changing these rules and instructions must be done manually.
  • AI is capable of self-learning based on new incoming information. Therefore, it is adaptive and takes into account differences in input data. AI trading systems are constantly evolving, which is why they are capable of responding to changing market conditions.
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Strengths of AI in Forex Trading

Artificial Intelligence is also called the digital brain. It can process a huge amount of information, noticing all the details and excluding such purely human factors as prejudices, emotions, desires, etc. Therefore, the help of AI is indispensable when you need to make rational decisions based on a large amount of data. Since Forex trading involves taking into account multiple variables, AI can become your main support and advisor. With its help, you will achieve results unimaginable in conditions of personal comprehension of all incoming information. In particular, artificial intelligence is used to solve the following tasks.

Predictive Analytics

Correct prediction of Forex market trends is the key to success in trading. However, to make forecasts, you need to learn how to distinguish patterns, and the slightest deviation in the pattern can make the forecast erroneous. You also need to wait for the right signals and their confirmation so as not to make a mistake. However, a person tends to follow wishful thinking. Traders often rush to place orders when it seems to them that they have accurately determined the direction of the trend. AI is devoid of such desires and emotions, and therefore, it will only act when confirming signals are received.

In addition, to make a forecast, it is important to take into account not only real-time data but also historical data. This is a huge amount of information that is difficult for the human brain to quickly process.

Sentiment Analysis

Modern AI-based bots are capable of analyzing not only chart patterns, exchange rate, technical indicators, and other precise metrics but also traders’ sentiments. To do this, they process information contained in specialized forums for traders, social media, news articles, etc. This will allow you to assess the mood of traders and be prepared for sudden market changes.

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Effective Risk Management

Objective risk assessment is the second important component of successful trading. Each trader has their level of risk tolerance and can configure trading bots in accordance with it. In addition to creating stop losses and take profits, AI will suggest the safest diversification of your portfolio. If you trade several currency pairs, it is important to choose them wisely. If they are highly correlated pairs, losses on one of them will lead to losses on the others. AI will conduct a correlation analysis and suggest those currency pairs that will mitigate risks for your portfolio.

Algorithmic Trading

AI-based bots can not only tell you what to do but also perform all the actions on their own. This way, you can significantly scale your Forex activity. Bots can make deals in parallel on several currency pairs, while a person is not capable of this. No matter how quickly market conditions change, the high speed of analysis and execution of orders by bots allows you to gain advantages in any situation. The minimum delay between analysis, decision-making, and order execution ensures you get the desired result rather than entering the market when the trend has already changed.

Risks of Using AI in Trading

  • The main risk that traders face is the lack of incentive to delve into the intricacies of trading in the presence of such an advanced assistant. If you completely delegate the decision-making power to a trading bot, you will not be able to objectively evaluate its effectiveness. In this case, the trader will not be able to independently determine how to adjust the bot’s work to obtain more effective results.
  • It is also important to remember that the benefits of AI will be fully realized only when it has access to current and historical data. Any failures in this regard may render it ineffective or biased.
  • Trading bots do not make the same mistakes as humans do but can have their bugs. Therefore, you must be prepared for possible technical failures and have a backup plan in case some of them occur.
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The Bottom Line

The benefits of using AI in Forex clearly outweigh the possible risks. Moreover, these risks are easy to mitigate if you are aware of them. To start your AI journey, you need to define your tasks first. You should decide what type of trading the bot should provide — scalping, day trading, long-term trading, etc. Only when you determine your priorities can you begin to choose a bot that will become not only your support but also a guide in Forex trading.