The Silicon Review
The operating model of investment firms is rapidly being altered by Artificial Intelligence. From front office decisions to back-office procedures, AI is used as a preferred tool for staying ahead of the curve. Better decisions and results can be achieved with AI, but it also brings about new challenges. When building AI capabilities, challenges such as feedback learning, server architecture, Big Data core competencies, and more, must be addressed to ensure long term success. Firms that don’t embrace AI will see increasing gaps in their performance vs new market participants embracing such technology. Leveraging AI effectively promises significant gains from both risk management as well as alpha capture and ultimately who dominates in the markets.
There are various firms specializing in creating AI-based investment tools, but one that stands out from the rest is Trade Ideas. The company delivers daily trading strategies in individual stocks via its virtual artificial intelligence analyst, HOLLY. Every evening and overnight, HOLLY conducts a ‘Quantitative Combine’ that performs over a million simulated trades against over 45 different algorithms. Each algorithm has a different purpose-designed to help beat the market. The AI looks at everything; long, short, small/big market cap, fundamental, social, technical data and everything volume-driven, etc. to statistically identify high probabilities for capturing alpha. Each algorithm is scored against current market conditions. Each day around 6 to 9 make the cut as the most likely to perform well. They generate the day’s ideas. Trade-Ideas also provide real-time decision support and risk management for trading equity and derivative instruments based on a statistical analysis of market technicals. The company was founded in 2002, and it is based in Encinitas, California.
In conversation with Dan Mirkin, CEO of Trade Ideas
Q. Explain your service in brief
Imagine a sophisticated poker bot, playing the rules properly, and doing what needs to be done based on poker game’s math. We are kind of like that but for the stock market. We cater to individuals who are looking to be self-directed and want to do their own investing. This demographic is growing! We have a full suite of technology. A client that talks to our own cloud where we crunch real-time stock data to find different important events—charting, news, and of course, real-time idea generation and notification. A rules-based trading engine inside the client is powered by statistical AI that looks at many different trades and is constantly comparing right now to different baselines. The software is always searching in real-time for opportunities and presents these opportunities in many unique ways. We look for a type of odds play in stocks and help investors find where the “COUNT” is right, which means where you should focus your time and in what direction. Additionally and unique to Trade Ideas, we have a full real-time simulation environment that allows people to learn how to speculate in stocks without risking. The system also reinforces proper behavior. Now back to imagination. Think DraftKings, but the games are real, and they are on every day. Once people learn in practice, they can connect the same UI to actual live trading and be completely comfortable in what they are doing.
Q. Tell us about the convenience and speed of AI based trading solutions.
With AI, it is like swimming with a lifeguard always on duty, only watching you! You feel better because you know you are less likely to make mistakes. Additionally, you learn to imitate the behavior, and that helps you to have your own individual feel. Every single day our AI has a full trading plan in place. It would be impossible for any person or even teams of people to come up with anything similar. We are talking about a 17-year advantage over our competitors!
Q. Experts predict that failure of trusted algorithms is about to happen. How can you make your solution foolproof?
Our AI is updating itself every single day with new information. The way to foolproof the trusted algorithm problem IS TO NEVER EVER TRUST ONE. We are always changing and wargamesing our own algorithms. Some algorithms compete with other algorithms, and ONLY THE BEST comes to the surface.
Q. Automated trading systems permit the user to trade multiple accounts or various strategies at one time. How does this help asset diversification?
What if I told you diversification is the opposite of what you should be doing? Is it not better to be in like an AMZN APPL and NVIDIA versus the NASDAQ? That is a simple truth. Diversification is fear-based, whereas concentration is strategy based. Think about it like playing blackjack. What is the proper way to play? Our AI makes people focus on where there are supply and demand patterns. Buy and hold concepts are very inefficient. Find winners and stay in them. If they are not winning, get out, and find others that are winning. and stay in them.
Q. Although it would be great to turn on the computer and leave for the day, automated trading systems do require monitoring. How can we prevent potential technological failures?
Stop wanting to play golf while the computer is trading. Although obviously that can be done from time to time, that is not an approach. It is a privilege. People must work with computers so that they can get FEEL. Feel is a human trait, and no AI will ever replicate that feel. Our AI helps investors feel moves, and then investors can extrapolate that out to other ideas. As investors work with the computer, think of it as your search engine. You still have to interact with what you get. Once again, stop pretending that it will be a goose that laid the golden egg.
Q. Do you have any new services ready to be launched?
We have a pipeline of several years out. We are currently adding more feedback to help investors know that they are behaving smartly or making mistakes. Training our AI to trade any stock somebody wants to trade. So a single stock AI to trade stocks Like AAPL or AMZN or TSLA versus just the statistical moves.
Meet the leaders behind the success of Trade Ideas
Dan Mirkin and his partners Philip Smolen, the CTO of Trade Ideas, started Trade Ideas in 2003 after Dan and Philip left a Menlo Ventures backed fintech startup called FutureTrade Technologies which Dan Mirkin had founded. They call this the 50 million dollar education. Watching what happened to FutureTrade after Menlo funding, Trade Ideas had a perfect blueprint on how to succeed. Just do the opposite of everything that was done by Menlo and FutureTrade. With the addition of Managing Partners David Aferiat and Brad Williams, as well as incredibly talented teams, the firm just finished their 4th year on the Inc. 5000 fastest growing privately held companies. Next year will be their fifth year and highest rank yet.