Long Short Strategy: How Can AI Help You Make Better Decisions

This article about Long Short Strategy was written by Gabriel Plat, a Financial Analyst at I Know First.

Resultado de imagem para long short strategy

But What Exactly Are Those Strategies?

First, we need to understand the concept of the long-short strategy. Both the long and short positions are commonly used in the stock market and knowing them is the first step to investing better and safely. Also, those positions are usually mistaken with long- and short-term concepts, which are not related.

The long position, or just long, is simply the act of buying an asset. If you are buying one share of some stock, then you are long 1 share. Buying an asset indicates that you are expecting a valorization to profit later.

In contrast, a short position could be simplified to “owing an asset to someone”. When you sell an option to buy it later to profit, you are considered in a short position. If you sell one share of some stock without having it by the moment, then you are short 1 share.

Those strategies are often used in the options market when long and short positions are used all the time to generate good results.

So how can an Artificial Intelligence (AI) impact this market?

Impacting the Market with AI

The basic strategy in the options market is not hard to understand. To profit, you should trust that a stock will vary accordingly to your prediction. Based on several different factors, it is possible to find a way for the AI to help with this kind of prediction.

Taking the algorithm of I Know First as an example, we can observe how the AI can understand the stock market as a whole and give us forecasts for different stocks. You can see the complete explanation about how this algorithm works by clicking here.

Considering the algorithm of I Know First, we can use this prediction to help investments in long-short strategy.

Mega Cap Stocks

If we consider the image above as an example, we can see how accurate the I Know First algorithmic trading is. There, the AI correctly predicted 9 out of 10 returns in big stocks like Facebook’s (FB) and Apple’s (AAPL). As well, this was not the first time that the algorithm predicted a long forecast performance correctly.

Recent forecasts from I Know First algorithm also correctly predicted trends with the same stock in other time horizons such as 3 Months and 1 Year. More than this, other notable stocks such as Tesla and Microsoft‘s had also a correct prediction. The AI also works in different categories such as S&P 500  forecast, Top S&P 500 stocks, and top stock picks.

The short strategy is also profitable

The algorithm not only gives a forecast for a long strategy but also for a short. I Know First AI provides outlooks with the best stocks for short, giving a bigger variety to the customer before he decides to invest. Similarly, the algorithm’s results for short strategy have a good history of success with consistent returns above average and the S&P 500 performance.

Stocks To Short

In this example, I Know First algorithm forecast was based on Big Data and got a pretty good return. The 14 Days outlook gave the investors a 20.12% return.

On the same day, the AI gave predictions to go long and also predicted exactly the trend. In this case, I Know First algorithm not only correctly forecasted all 10 suggested trades but as well gave a very good return of 90.92%.

In other words, the algorithm maintained a good performance with both short and long strategies, giving the investors solid advice before deciding where they should put their money. The AI gave information for both strategies on the same day, showing that is possible to invest in both situations and still get returns from both of them.

This kind of information can serve as a boost to get higher returns or, in the worst case, minimize losses. When the algorithm can predict the stock movement with good accuracy, it is easier to decide what kind of strategy to use to have profit, something that could be harder or even impossible to do without the help of an AI.

How We Should Relate Them Together?

It is common to hear from more experienced investors not to “put all your eggs in one basket”. The true meaning of this is to diversify your portfolio, balancing your risks-vs-return. With a good diversification in the portfolio and a good strategy, you can minimize the risk and the loss in several situations. So why not use artificial intelligence to help with this?

As said before, the algorithm can use all its database not only for the options market but as well to other areas. Methods like pattern recognition, machine learning, Big Data, and others are used by the AI to supply investment strategies with predictions. Thereafter, it is possible to apply them in several different investment areas to generate more information that can be useful to help an investor and his strategy. The more available information, the better for the investment.

These algorithm results are proven to help investors in their decisions. It is common to see an average return higher than the S&P 500 performance, indicating how good can be the forecasts.

Best ETF To Buy chart

In the picture above, we can see an ETF forecast made by the algorithm of I Know First. The full package contained both Top 10 ETFs for a long and a short position. The chart indicates the 1 Year performance of the long position and it is possible to see that the I Know First Average return is higher than the S&P 500’s. We can see the same results in other areas like Forex forecast, gold price forecast, cryptocurrencies, and volatility trading. At the same time, the algorithm can also provide forecasts of the best stocks to buy, along with Apple stock forecast and top Fintech companies forecast.

It is good to reinforce that the algorithm is not predicting something with 100% accuracy. Considering the way that the stock market reacts and adapts, it will probably be impossible to predict exactly the stock trends all the time. The AI works giving a predictability indicator of that trend to happen, giving the investor more information before he decides to invest.


The options market is not a lot different from other markets, which different types of strategies can help the investor to profit. With a lot of factors involved in the movement of the stock, it is possible to apply machine learning to help determine what kind of strategy should be applied and when it should be applied.

In this perspective, the algorithm of I Know First excels. Besides stock forecasting different areas, the AI also makes predictions to the options market, providing a good result for both long and short strategies.

This kind of information can be useful to several types of investors. The individual investor who mostly put his money with long positions to receive passive income can diversify his portfolio and minimize his risks. The professionals and institutional clients can use the algorithm outlook to have a better indication of where and when assets should be negotiated in order to maximize their profit.

All in all, the investor can make a more conscious decision in his strategy and thereafter get better performance than he could have without the help of the algorithm.

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