Editor's note: Wall Street's top-performing hedge funds are moving away from stock pickers in suits. They're using algorithms and data models to replace human decision-making. But according to Keith Kaplan, CEO of our corporate affiliate TradeSmith, you can harness these tools without losing control of your money... In today's piece, originally published in the free TradeSmith Daily newsletter, Keith shares how to use AI-driven systems the right way... and reveals a major breakthrough that's putting the benefits into the hands of everyday investors.
Wall Street's Top Trader Has No Pulse By Keith Kaplan, CEO, TradeSmith
In 2022, one hedge fund made more money hourly than most folks do in a lifetime... While most investors were nursing double-digit losses, Ken Griffin's Citadel took in $16 billion in profit. That's about $9.8 million every hour the market was open. It's the largest haul in hedge-fund history... But it didn't come from a hot tip or a lucky "big short." Instead, Citadel built a machine that could out-trade the world. To be clear, this wasn't to assist traders with machines. Instead, Citadel's trading is entirely run by systematic models and machine learning... a powerful branch of AI. That old image of a trader – a guy in a suit and suspenders, watching over a bunch of charts, tickers, and newsfeeds – is headed for the history books. As Ken Griffin put it, "The role of human discretion in trading is diminishing. The future belongs to those who can build the best models." Until now, these kinds of models were the exclusive domain of Wall Street giants. But that's about to change. Thanks to the biggest breakthrough so far in our 20-year history at TradeSmith, self-directed investors like you can now tap into the power of AI-assisted trading... reaping the benefits without giving up your best judgment. Let me explain...
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Do You Fall Into These Psychological Traps? The No. 1 enemy of successful trading is human emotion. Fear, greed, and hesitation aren't just buzzwords – they're psychological traps that cause folks to miss opportunities, panic sell, or hold on too long. Don't just take my word for it. Every year, market research firm Dalbar publishes its Quantitative Analysis of Investor Behavior report. It analyzes how individual investors perform versus the markets. The goal is to measure the impact of investor behavior on returns. It's always a sobering read. In April, Dalbar released its 2024 report. Last year, the average stock market investor earned 16.5% compared with the S&P 500 Index's 25% return. That gap is the fourth-largest underperformance since Dalbar began tracking investor behavior trends in 1985. What accounts for this woeful underperformance? The report cited nine types of behavior that plague investors... - Loss aversion – expecting to find high returns with low risk
- Narrow framing – making decisions without considering all implications
- Mental accounting – taking undue risk in one area and avoiding rational risk in another
- Diversification – seeking to reduce risk, but simply using different sources
- Anchoring – relating to familiar experiences, even when inappropriate
- Media response – the tendency to react to news without reasonable examination
- Regret – feeling too negatively after making a mistake
- Herding – copying the behavior of others, even in the face of unfavorable outcomes
- Optimism – the belief that good things happen to them, while bad things happen to other people
Now, I'm not saying you fall into all nine of these traps. But if you're anything like the average investor, chances are, a few of them will sound familiar. And as Dalbar has shown year in and year out, that hurts your returns. But AI doesn't suffer from these behaviors... AI Doesn't Flinch As the folks at Citadel know, AI doesn't make decisions based on optimism, pessimism, or any other unhelpful human emotion. It doesn't get rattled when the market opens red. It simply follows the data. And unlike a human trader, AI doesn't sleep, take breaks, or go on vacation. Instead, it constantly scans the markets, analyzing millions of data points, back testing strategies, and adjusting in real time. No human can match that speed and accuracy. And that's why, by leveraging AI, you can start to level the playing field with elite Wall Street firms. We believe no one is better suited than you to manage your money... because no one cares as much about your wealth as you do. But you also deserve to have access to tools on par with Wall Street insiders. You can still get the benefits... And you don't have to be an investment pro – or give up control of your finances – to do it. My team and I at TradeSmith just unveiled a powerful new AI tool that can pinpoint a stock's "profit window" – the ideal time frame to trade a stock on any given day. It's built on more than 120 million data points, including... - 4.2 million historical price outcomes across more than 2,400 stocks over seven years
- 88.9 million daily forecasts that model price movements across a 21-day horizon
- Tens of millions of "validation" runs, which refine accuracy and confidence with each new day of data
And the results are stunning. In back tests, this tool identified time windows where stocks surged so fast, it was like compressing four, five, even nine years of market gains into just a few weeks. So, if you want to be among the first to see this new AI in action, take a look and try TradeSmithGPT for yourself – for a limited time. All the best, Keith Kaplan
Editor's note:Our friends at TradeSmith just unveiled their new proprietary AI system. They call it TradeSmithGPT... And now, they're about to reveal its latest opportunity. Designed to help everyday investors capture years' worth of gains in just weeks, this tool helps level the playing field with the 90% of Wall Street traders that already use AI. TradeSmithGPT has just helped identify a new trade alert for this Wednesday, July 9... Find out the details – and how to catch the next "profit window." Further Reading Even some of the world's leading tech CEOs have missed the early signs of past world-changing innovations. Today, AI is following a similar playbook. It's still early, but the biggest gains will go to those who spot the leaders before the rest of the market catches up. Smartphones reshaped the world. But now, their limits are starting to show. Economic pressure, failing infrastructure, and rising alternatives are setting the stage for a major shift – one that could upend a $550 billion industry and redefine how we interact with technology. |
Market Notes HIGHS AND LOWS NEW HIGHS OF NOTE LAST WEEK JPMorgan Chase (JPM)... financial giant
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Royal Bank of Canada (RY)... financial services
Toronto-Dominion Bank (TD)... financial services
Bank of New York Mellon (BK)... financial services
Wells Fargo (WFC)... financial services
Charles Schwab (SCHW)... brokerage services
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Ryder System (R)... logistics
CrowdStrike (CRWD)... cloud security
Oracle (ORCL)... database and cloud services NEW LOWS OF NOTE LAST WEEK Centene (CNC)... health insurance
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