Handling LLM Hallucinations in Live Trading

If an LLM hallucinates a bullish signal and you execute, you lose money. It is that simple. This guide covers how to build safety nets.

1. Strict Typed Outputs

Never accept raw text. Force the LLM to output Pydantic schemas or strict JSON, and validate it immediately. If the parsing fails, drop the signal. Do not try to have the LLM "fix" it in an automated loop during live trading; latency matters.

2. Bounded Execution

The system executing the trade should have hard limits that the LLM cannot override. E.g., Max position size = $5,000. Max trades per day = 5. Even if the LLM says "ALL IN," the execution layer caps it.