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Home » Brokers » AI trading solution to help traders understand their psychological biases

According to a recent survey run by CFD broker Capital.com, more than half of all traders on its platform (58%) say they prefer to trade on logic rather than emotion (33%), or news and information (25%) when making an investment decision. This is compared to 18% of traders who say their trading decisions are influenced by a company’s price movements and just 13% who say that the brand and/or reputation of a company is an important emotional motivator when making a trade.

The findings, which were revealed in a survey of 4267 Capital.com clients polled globally, suggest that DIY traders and investors prefer to steer clear of emotions when making investment decisions. The survey was carried out between 21 February and 31 March 2022.

Arty Rusetski, Head of Data Science and Artificial Intelligence (AI) at Capital.com, said: “It is encouraging to note that traders on Capital.com value the importance of making decisions based on logic and information. However, despite DIY investors’ best intentions, it is difficult to escape emotional triggers and unconscious bias when making trading and investing decisions.”

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Psychological biases that can present themselves when people trade include overconfidence bias—the sensation of believing the hype around an investment—and memory bias, when a trader gives too much credence to recent events and news.

“It is very difficult to control emotions and not to fall into psychological traps, but the ability to be aware of them and not allow them to influence your decisions can help mitigate some common trading mistakes,” said Rusetski.

Capital.com to launch AI app to help traders avoid psychological traps

To help traders identify when they may be falling into psychological traps, Capital.com has developed a dedicated AI solution to monitor their activity on a post-trade basis. Based on an investor’s trading patterns, the proprietary AI will deliver personalised and tailored content to clients via in-app messages, push notifications and emails helping them better evaluate their trading behaviours and serving them with tailored educational content. The functionality will be rolled out later this year.

“Our AI programme will identify the key drivers of investor behaviour, which are personality type, emotional status and behavioural biases. Our aim is to educate, but we recognise that each of us learns in our own way. By utilising cutting edge AI technology to understand client behaviour, we can ensure that each individual gets the educational content in a format and style that may best suit their needs and preferences,” added Rusetski.

Stocks, stocks and more stocks

The survey also revealed that most DIY investors would choose to invest in stocks if they had additional capital at their disposal. When asked how they might invest EUR 10,000 given the opportunity, 46% of respondents said they would buy stocks. Only 8% said they would buy bonds and 14% said they would not invest at all or buy something else entirely. The remaining 32% of respondents said they would choose to buy cryptocurrencies (cryptocurrencies are not available to Capital.com clients in the UK).

“It is perhaps not too surprising that investors’ love affair with the stock market continues, even when global benchmarks like the S&P 500 are down by around 13% year-to-date,” David Jones, Chief Market Strategist at Capital.com, said. “Although as investors we now have access to a wider range of markets than ever before, plenty still feel more comfortable with individual stocks – regardless of what the overall market is doing – as there is a level of familiarity with the types of names we could be buying into. Given the large falls in stocks such as Netflix, FaceBook and Tesla – previous darlings of the wider investor community – some may think that the slide in many stock prices this year gives an opportunity to buy-in at more sensible valuations.”

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This article is not investment advice. Investors should do their own research or consult a professional advisor.

Graeme Andrew

Graeme Coles-Andrew

Graeme is Head of Technology at the Armchair Trader. He has worked in online financial investment publishing since 2000 as a website developer, advertising operations manager, data scientist and all-round go-to guy for online technical solutions.

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