How to Use ChatGPT in Trading
When ChatGPT was first released, YouTube was flooded with moronic videos clickbaiting you into thinking that there is now an easy way to make money trading. I believe this approach severely under-leverages ChatGPT's true capabilities to develop yourself as a trader.
Why do I call these videos moronic? These videos attempt to offer a shortcut to successful trading by skipping the chart time, strategy development, and testing that consume more time than what most people are willing to commit.Without realizing it, you're really just prompting ChatGPT to scrape whatever content it can find online where others have self-proclaimed to have a "profitable trading strategy." Rather than gearing your time towards developing trading strategies that you know inside out, you're now testing a mishmash set of trading rules that ChatGPT scraped together and spat out.
I think most consumer-level ChatGPT use cases are low level. They focus on efficiency and automation, which makes you lazy.
I recently chatted with a few people at a trading conference. One person proclaimed to use ChatGPT to summarize news articles, but I have other thoughts. In theory, this sounds great, but it's actually highly dangerous.
When ChatGPT spits out a few bulletpoints of a news article, how do you now that these are the important points? The only mission that this has served is get you to your answer faster, but it's not necessarily the important answer.
My perspective is that ChatGPT adds more value by accelerating your learning to perform optimized analysis with foreign inputs. I found this to be even more powerful after investing $20 USD per month into a ChatGPT Plus subscription.
From a macroeconomic lens, globally speaking, we're currently in a high interest rate environment. ChatGPT was able to accelerate my learning in extension to the textbook theory of equity and bond market reactions. Speaking about a real-world use case, it allowed me to weaken my bullish sentiment on the Great Britain pound.
The UK's taxation stance has been quite controversial with regular news articles on this subject. But, I didn't know how to make sense of this - high taxation in a high rate environment. This is where I turned to ChatGPT to accelerate my learning and redefine the trend strength I viewed for GBP pairs.
I asked ChatGPT:
Historically, how have economies and their respective currencies performed in a high taxation, high inflation, and high interest rate environment?
Here was ChatGPT's response:
Historically, economies and their respective currencies in a high taxation, high inflation, and high interest rate environment have faced several challenges and exhibited specific behaviors:
Economic Performance
1. Stifled Economic Growth: High taxation can reduce disposable income and corporate profits, potentially leading to decreased consumer spending and lower business investment. This can slow down economic growth.
2. Strained Business Environment: Companies may face increased costs due to high taxes and inflation, impacting their profitability and ability to invest and expand. This can lead to a reduction in job creation or even job losses.
3. Consumer Spending Power: High inflation erodes the purchasing power of consumers, leading to a decrease in real income. This can further suppress consumer spending, especially on non-essential goods and services.
4. Investment Challenges: High interest rates make borrowing more expensive for both businesses and consumers. This can lead to reduced investment in the economy, impacting growth prospects.
Currency Performance
1. Potential for Currency Strength in High Interest Rate Environment: Higher interest rates can attract foreign investors looking for better returns, which can increase the demand for the domestic currency, potentially strengthening it. However, this is not a universal rule and depends on the overall confidence in the economy and its management.
2. Inflation Impact: High inflation can lead to a depreciation of the currency, especially if it is higher than in other countries. This can happen as inflation erodes the real value of the currency, and investors may seek assets in more stable economies.
3. Fiscal and Monetary Policy Responses: The way a government and central bank respond to these challenges can significantly influence the currency's performance. Effective policy measures can instill confidence, while perceived mismanagement can lead to currency weakness.
4. Global Perspective: The performance of a currency is also influenced by how other global economies are performing. If other major economies are in a similar situation, the relative impact might be less pronounced than if an economy is an outlier.
Historical Examples
- 1970s Oil Crisis and Stagflation: In the 1970s, many economies experienced high inflation and slow growth, a situation termed "stagflation." Interest rates were raised to combat inflation, which led to various economic challenges, including currency fluctuations.
- Latin American Debt Crisis in the 1980s: High inflation, high interest rates, and economic mismanagement led to severe economic crises in several Latin American countries, impacting their currencies and leading to debt defaults.
Conclusion
The interaction of high taxation, high inflation, and high interest rates presents a complex challenge for economies and their currencies. The overall impact depends on a range of factors, including the economic policies adopted, global economic conditions, and investor confidence in the economy's management. Historically, such conditions have often led to economic hardship and currency volatility, though the specific outcomes can vary based on the context and policy responses.
By going through an iterative process prompting ChatGPT, I was able to learn:
- What is currently driving the UK's high inflation
- Why Rishi Sunak is adopting a high taxation policy (and facing challenges cutting taxes)
- The UK's track record for controlling inflation
- Currency and alternative asset class behaviors should risk of recession spike