Emotion Predicts Stock Market Not Technology
“This is not a perfect game. I compile statistics on my traders. My best trader makes money only 63 percent of the time. Most traders make money only in the 50 to 55 percent range. That means you’re going to be wrong a lot. If that’s the case, you better make sure your losses are as small as they can be, and that your winners are bigger. – Steve Cohen”
Hedge funds have been approaching investment intelligence all wrong since 2011 because they’re using technology wrong. Technology doesn’t factor in emotions. Technology can give you inputs and outputs to give statistical predictions how the stock market will change, but the emotional nuance is too important to know the true behavior of the market. That’s why artificial intelligence won’t make asset managers obsolete any time soon. MIT has been trying for years to create an emotion algorithm to incorporate in artificial intelligence, but emotions are not a perfect science. In fact, MIT officials have stated that they’re not even close to an emotional AI technology.
Steve Cohen made billions of dollars by interpreting basic emotional behaviors to his advantage for extremely large gains. Taking high risks is an emotional experience and balancing his risk with the emotional volatility of the market was a strategy that made Steve Cohen’s career. AI technology as it stands now will only hinder that capability to interpret the emotional state the market is in. Hedge funds need to move back to what they know and realize that the markets do what they do because of the emotions of others.