RJ Hamster
Must Read: What AI Sees in the Market That…
What AI Sees in the Market That You Don’t
Editor’s Note: Markets generate an enormous amount of data every single day. The challenge has always been figuring out which data actually matters.
In my experience, the investors who do best are the ones who can cut through that noise and focus on the signals that tend to repeat.
Today, my colleague Keith Kaplanshares a similar approach. He and his team have been using AI to scan through massive amounts of market data, looking for patterns that have shown up again and again over time.
He recently walked through the full strategy during his AI Signals Trading Event, including how the system selects trades and manages risk.
You can watch the full presentation here.
In the essay below, Keith explains how this system works – and how it helps uncover patterns in market data that have been there all along, but are only now becoming visible.
Tycho Brahe’s mission in life was to be the first to explain how the planets really moved.
So this obsessive 16th century Danish astronomer spent more than two decades building the most precise record of planetary motion the world had ever seen — and then guarded it so jealously almost no one was allowed to see it.
In Brahe’s time, there were no telescopes. Every measurement he took was with the naked eye, using instruments he designed and built himself on a small island off the coast of Denmark.
It was a data set unlike anything that had ever existed — page after page of handwritten figures and precise planetary positions.
He couldn’t interpret all that data alone. So he brought on a brilliant young German mathematician named Johannes Kepler. But Brahe, afraid Kepler might make the discovery first, handed his apprentice only just enough data to be useful and locked the rest away.
That arrangement lasted barely a year. In October 1601, Brahe died suddenly. Kepler inherited his notebooks and studied them intensely for the next four years.
What he found was proof that everything astronomers had assumed since ancient Greece was wrong.
Kepler realized that planets didn’t move in perfect circles. They moved in ellipses — slightly flattened ovals, with the sun off to one side rather than in the direct center.
Almost a century later, Isaac Newton read Kepler’s laws of elliptical motion and worked out the force that explained them. He called it gravity.
One of the most important ideas in the history of science was hiding in Brahe’s notebooks for decades. The data had always been there. All it needed was someone who could make it legible.
I’m telling you this because the stock market has a Tycho Brahe problem, too.
It generates more data in a single trading day than Brahe recorded in a lifetime. The problem is, for most of its existence, only a tiny fraction of it has been readable.
But today, thanks to AI, it’s possible to find “signals” inside that data — repeating patterns that point to future moves in stocks, many with historical accuracy rates of 90% or better.
I know because my team and I at TradeSmith have created a new AI-powered trading tool that’s unearthed more than 200 of these signals across nearly 2,500 stocks.
As I showed the nearly 9,000 people who joined my AI Signals Trading Event on Wednesday, in a six-year backtest, a model portfolio of these signals trades delivered a 12x return.
And in 2022 — the worst year for stocks in half a century — they produced an average backtested gain of 16.6% while the S&P 500 fell nearly 20%.
If you missed it, the replay is still online. It’s packed full of trade examples, strategy details, and on-screen demos. Go here to watch it now.
Today, I want to share something I didn’t have time to cover on Wednesday — how much work and ingenuity went into building our new system.
The answer is: more than I expected.
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When a secretive project gets a name, it means we’re closer to a breakthrough than most people think. Behind the razor wire of a hidden government lab in Tennessee, 40,000 scientists are finishing work on an AI computer 283 trillion times more powerful than today’s data centers — spanning more than 700 miles and built to speed up AI breakthroughs by 36,000%. When Golden Dawn launches, it could instantly leapfrog ChatGPT, Gemini, and Grok — and trigger a $100 trillion reset of the AI markets. Louis Navellier is revealing the one stock at the center of it — down to the ticker — but only through May 5th. Click here to get the details, free.
Can the Weather in Paris Move the Stock Market?
Our chief developer, Mike Carr, has been writing code for 40 years.
He spent 20 years in the U.S. Air Force – coding nuclear missile paths, working on cryptography for the National Security Agency, and helping install an early version of the internet at the Pentagon.
When he left the military, he went on to manage more than $200 million in client funds. He also became a Chartered Market Technician — a credential only about 4,500 people in the world hold.
Two years ago, he joined TradeSmith to help us develop new analytics and strategies. And he brought with him the kernel of an idea he’d been working on for more than 20 years.
In 2003, Mike started doing rudimentary signal studies. Every time he spotted a repeating pattern in the data that tended to precede a move in a stock — he noted it down. He traded this way for years, constantly testing what worked and what didn’t.
Then in 2016, he read a Bloomberg profile of Jim Simons’ storied hedge fund, Renaissance Technologies. One detail stuck with him: Simons had once found a tradable signal involving the weather in Paris.
If he could find a signal in Paris weather, Mike realized, the signals hiding in ordinary market data had to be almost limitless. That was the moment he decided to stop hunting for signals manually and start building a system that could hunt them at scale — one ordinary investors could actually use.
Last year, we started feeding the 150 or so signals he’d collected into an AI system and prompted it to generate more like them. We processed more than 1 trillion database rows, running every stock through 847 individual calculations. We tested every combination of price patterns, technical indicators, and calendar conditions we could find.
Then we hit a problem we hadn’t anticipated.
On any given day, our AI-powered signals generator was delivering a flood of 697 trade setups – all with historical accuracy rates of 75% or better. It was far too much for any trader to handle, no matter their level of experience.
So we spent the next six months solving a different problem: How do you take that many high-quality signals and deliver something an investor can actually use?
The answer Mike came up with was the Quality Score. It’s a 0-to-100 rating that factors each signal’s win rate and average returns and uses machine learning to figure out how effective it was during similar market conditions in the past.
Pair that with a focused model portfolio, and the flood became an actionable shortlist.
Introducing Our Three-Stock Strategy
At any given moment, it holds three S&P 500 stocks — each one selected by an algorithm based on its Quality Score and other key factors. When an exit signal fires on one of the three, a new trade recommendation takes its place.
That’s the whole strategy. Three positions, always live. Each one selected not because a human liked a chart or a story… but because an algorithm chose a mathematically optimal trade.
We backtested it from January 1, 2020 through January 30, 2026 – a stretch that covered the COVID crash, the 2022 bear market, two years of historic inflation, rising interest rates, and two wars.
It wasn’t a friendly period to stress-test a trading system against. But here’s what the Signals Master Portfolio produced:
- A 54% compounded annual return— versus about 15% for the S&P 500 over the same six years
- A 73.4% win rate across hundreds of trades
- A maximum drawdown of 18.1% — less than the S&P 500’s maximum drawdown of 25.4%
The model portfolio’s maximum drawdown is worth pausing on.
A lot of trading systems can generate a high compounded return in a backtest. Few can generate one that also held up better than a benchmark like the S&P 500 during its worst stretch. That’s the litmus test of whether a system is managing risk effectively or just riding luck.
Which is the point of what we’ve spent the last 12 years (and in Mike’s case, more than 20 years) developing. Hedge funds have been doing this kind of work for decades — pattern recognition, machine learning, disciplined rotation in and out of short-term trades. But until now, nothing like it has existed for regular investors.
I went into all the details during Wednesday’s launch event. So if you haven’t already, make sure to check it outwhile it’s still online.
Keith Kaplan
CEO, TradeSmith
