Trend following deep Q-Learning strategy for stock trading

Computers and algorithms are widely used to help in stock market decision making. A few questions with regards to the profitability of algorithms for stock trading are can computers be trained to beat the markets? Can an algorithm take decisions for optimal profits? And so forth. In this research work, our objective is to answer some of these questions. We propose an algorithm using deep Q-Reinforcement Learning techniques to make trading decisions. Trading in stock markets involves potential risk because the price is affected by various uncertain events ranging from political influences to economic constraints. Models that trade using predictions may not always be profitable mainly due to the influence of various unknown factors in predicting the future stock price. Trend Following is a trading idea in which, trading decisions, like buying and selling, are taken purely according to the observed market trend. A stock trend can be up, down, or sideways. Trend Following does not predict the stock price but follows the reversals in the trend direction. A trend reversal can be used to trigger a buy or a sell of a certain stock. In this research paper, we describe a deep Q-Reinforcement Learning agent able to learn the Trend Following trading by getting rewarded for its trading decisions. Our results are based on experiments performed on the actual stock market data of the American and the Indian stock markets. The results indicate that the proposed model outperforms forecasting-based methods in terms of profitability. We also limit risk by confirming trading actions with the trend before actual trading.     

A generalized model for financial time series representation and prediction

Traditional financial analysis systems utilize low-level price data as their analytical basis. For example, a decision-making system for stock predictions regards raw price data as the training set for classifications or rule inductions. However, the financial market is a complex and dynamic system with noisy, non-stationary and chaotic data series. Raw price data are too random to characterize determinants in the market, preventing us from reliable predictions. On the other hand, high-level representation models which represent data on the basis of human knowledge of the problem domain can reduce the randomness in the raw data. In this paper, we present a high-level representation model easy to translate from low-level data into the machine representation. It is a generalized model in that it can accommodate multiple financial analytical techniques and intelligent trading systems. To demonstrate this, we further combine the representation with a probabilistic model for automatic stock trades and provide promising results. An erratum to this article can be found at     

Cascading logistic regression onto gradient boosted decision trees for forecasting and trading stock indices

Forecasting the direction of the daily changes of stock indices is an important yet difficult task for market participants. Advances on data mining and machine learning make it possible to develop more accurate predictions to assist investment decision making. This paper attempts to develop a learning architecture LR2GBDT for forecasting and trading stock indices, mainly by cascading the logistic regression (LR) model onto the gradient boosted decision trees (GBDT) model. Without any assumption on the underlying data generating process, raw price data and twelve technical indicators are employed for extracting the information contained in the stock indices. The proposed architecture is evaluated by comparing the experimental results with the LR, GBDT, SVM (support vector machine), NN (neural network) and TPOT (tree-based pipeline optimization tool) models on three stock indices data of two different stock markets, which are an emerging market (Shanghai Stock Exchange Composite Index) and a mature stock market (Nasdaq Composite Index and S&P 500 Composite Stock Price Index). Given the same test conditions, the cascaded model not only outperforms the other models, but also shows statistically and economically significant improvements for exploiting simple trading strategies, even when transaction cost is taken into account.     

Intelligent stock trading system based on improved technical analysis and Echo State Network

Stock trading system to assist decision-making is an emerging research area and has great commercial potentials. Successful trading operations should occur near the reversal points of price trends. Traditional technical analysis, which usually appears as various trading rules, does aim to look for peaks and bottoms of trends and is widely used in stock market. Unfortunately, it is not convenient to directly apply technical analysis since it depends on person’s experience to select appropriate rules for individual share. In this paper, we enhance conventional technical analysis with Genetic Algorithms by learning trading rules from history for individual stock and then combine different rules together with Echo State Network to provide trading suggestions. Numerous experiments on S&P 500 components demonstrate that whether in bull or bear market, our system significantly outperforms buy-and-hold strategy. Especially in bear market where S&P 500 index declines a lot, our system still profits.     

基于Internet的嵌入式股票机系统设计与实现

提出一种新型的基于Internet的嵌入式股票机。它具有行情显示、技术分析、信息浏览、股票交易等众多功能。采用嵌入式操作系统和B/S结构,不但方便用户的操作,而且内容更新十分容易,充分满足股票信息随时变化的特点。借助于本系统,用户可以在客厅里进行所有的股票信息浏览和交易,大大降低了操作成本和难度,市场潜力巨大。     

Intelligent stock trading system with price trend prediction and reversal recognition using dual-module neural networks

This article presents an intelligent stock trading system that can generate timely stock trading suggestions according to the prediction of short-term trends of price movement using dual-module neural networks(dual net). Retrospective technical indicators extracted from raw price and volume time series data gathered from the market are used as independent variables for neural modeling. Both neural network modules of thedual net learn the correlation between the trends of price movement and the retrospective technical indicators by use of a modified back-propagation learning algorithm. Reinforcing the temporary correlation between the neural weights and the training patterns, dual modules of neural networks are respectively trained on a short-term and a long-term moving-window of training patterns. An adaptive reversal recognition mechanism that can self-tune thresholds for identification of the timing for buying or selling stocks has also been developed in our system. It is shown that the proposeddual net architecture generalizes better than one single-module neural network. According to the features of acceptable rate of returns and consistent quality of trading suggestions shown in the performance evaluation, an intelligent stock trading system with price trend prediction and reversal recognition can be realized using the proposed dual-module neural networks.     

Design and implementation of a multiagent stock trading system

Stock trading is one of the key items in an economy and estimating its behavior and taking the best decision in it are among the most challenging issues. Solutions based on intelligent agent systems are proposed to cope with those challenges. Agents in a multiagent system (MAS) can share a common goal or they can pursue their own interests. That nature of MASs exactly fits the requirements of a free market economy. Although existing studies include noteworthy proposals on agent‐based market simulation and researchers discuss theoretical design issues of agent‐based stock exchange systems, unfortunately only a very few of the studies consider exact development and implementation of multiagent stock trading systems within the software engineering perspective and guides to the software engineers for constructing such software systems starting from scratch. To fill this gap, in this paper, we discuss the development of a multiagent‐based stock trading system by taking into consideration software design according to a well‐defined agent oriented software engineering methodology and implementation with a widely‐used MAS software development framework. Each participant in the system is first designed as belief–desire–intention agents with their facts, goals, and plans, and then belief–desire–intention reasoning and behavioral structure of the designed agents are implemented. Lessons learned during design and development within the software engineering perspective and evaluation of the implemented multiagent stock exchange system are also reported. Copyright © 2011 John Wiley & Sons, Ltd.     

Empirical analysis: stock market prediction via extreme learning machine

How to predict stock price movements based on quantitative market data modeling is an attractive topic. In front of the market news and stock prices that are commonly believed as two important market data sources, how to extract and exploit the hidden information within the raw data and make both accurate and fast predictions simultaneously becomes a challenging problem. In this paper, we present the design and architecture of our trading signal mining platform that employs extreme learning machine (ELM) to make stock price prediction based on those two data sources concurrently. Comprehensive experimental comparisons between ELM and the state-of-the-art learning algorithms, including support vector machine (SVM) and back-propagation neural network (BP-NN), have been undertaken on the intra-day tick-by-tick data of the H-share market and contemporaneous news archives. The results have shown that (1) both RBF ELM and RBF SVM achieve higher prediction accuracy and faster prediction speed than BP-NN; (2) the RBF ELM achieves similar accuracy with the RBF SVM and (3) the RBF ELM has faster prediction speed than the RBF SVM. Simulations of a preliminary trading strategy with the signals are conducted. Results show that strategy with more accurate signals will make more profits with less risk.     

Evaluation of a high‐volume,low‐latency market data processing system implemented with IBM middleware

A stock market data processing system that can handle high data volumes at low latencies is critical to market makers. Such systems play a critical role in algorithmic trading, risk analysis, market surveillance, and many other related areas. The current systems tend to use specialized software and custom processors. We show that such a system can be built with general‐purpose middleware and run on commodity hardware. The middleware we use is IBM System S which includes transport technology from IBM WebSphere MQ Low Latency Messaging (LLM). Our performance evaluation consists of two parts. First, we determined the effectiveness of each system optimization that the hardware and software infrastructure makes available. These optimizations were implemented at all software levels—application, middleware, and operating system. Second, we evaluated our system on different hardware platforms. Copyright © 2011 John Wiley & Sons, Ltd.     

Trading With a Stock Chart Heuristic

The efficient market hypothesis (EMH) is a cornerstone of financial economics. The EMH asserts that security prices fully reflect all available information and that the stock market prices securities at their fair values. Therefore, investors cannot consistently ldquobeat the marketrdquo because stocks reside in perpetual equilibrium, making research efforts futile. This flies in the face of the conventional nonacademic wisdom that astute analysts can beat the market using technical or fundamental stock analysis. The purpose of this research is to partially assess whether technical analysts, who predict future stock prices by analyzing past stock prices, can consistently achieve a trading return that outperforms the stock market average return. This is tested using knowlege engineering experimentation with one price history pattern - the ldquobull flag stock chartrdquo - which signals technical analysts of a future stock market price increase. A recognizer for the stock chart pattern is built using a template-matching technique from pattern recognition. The recognizer and associated trading rules are then tested by simulating trading on over 35 years of daily closing price data for the New York stock exchange composite index. The experiment is then replicated using the horizontal rotation or mirror image pattern of the ldquobull flagrdquo (or ldquobear flagrdquo stock chart) that signals a future stock market decrease. Results are systematic, statistically significant, and fail to confirm the null hypothesis based on a corollary to the EMH: that profit realized from trading determined by this heuristic method is no better than what would be realized from trading decisions based on random choice.     

The role of algorithmic trading systems on stock market efficiency

The rapid development of information technology has changed the dynamics of financial markets. The main purpose of this study is laid on examining the role of IT based stock trading on financial market efficiency. This research specifically focused on algorithmic trading. Algorithmic trading enables investors to trade stocks through a computer program without the need for human interventions. Based on an empirical analysis of the Korean stock market, this study discovered the positive impact of algorithmic trading on stock market efficiency at three-fold. First, the study results indicate that algorithmic trading contributes to the reduction in asymmetric volatility, which causes inefficiency of information in a stock market. Second, an algorithmic trading also increases the operation efficiency of a stock market. Arbitrage trading contributes on the equilibrium between the spot market and futures market as well as on the price discovery. Third, algorithmic trading provides liquidity for market participants contributing to friction free transactions. The research results indicate that stock exchanges based on electronic communications networks (ECNs) without human intervention could augment a financial market quality by increasing trading share volumes and market efficiency so that it can eventually contribute to the welfare of market investors.     

A stock trading expert system based on the rule-base evidential reasoning using Level 2 Quotes

Generally, stock trading expert systems (STES) called also “mechanical trading systems” are based on the technical analysis, i.e., on methods for evaluating securities by analyzing statistics generated by the market activity, such as past prices and volumes (number of transactions during a unit of a timeframe). In other words, such STES are based on the Level 1 information. Nevertheless, currently the Level 2 information is available for the most of traders and can be successfully used to develop trading strategies especially for the day trading when a significant amount of transactions are made during one trading session. The Level 2 tools show in-depth information on a particular stock. Traders can see not only the “best” bid (buying) and ask (selling) orders, but the whole spectrum of buy and sell orders at different volumes and different prices. In this paper, we propose some new technical analysis indices bases on the Level 2 and Level 1 information which are used to develop a stock trading expert system. For this purpose we adapt a new method for the rule-base evidential reasoning which was presented and used in our recent paper for building the stock trading expert system based the Level 1 information. The advantages of the proposed approach are demonstrated using the developed expert system optimized and tested on the real data from the Warsaw Stock Exchange.     

Stock market one-day ahead movement prediction using disparate data sources

There are several commercial financial expert systems that can be used for trading on the stock exchange. However, their predictions are somewhat limited since they primarily rely on time-series analysis of the market. With the rise of the Internet, new forms of collective intelligence (e.g. Google and Wikipedia) have emerged, representing a new generation of “crowd-sourced” knowledge bases. They collate information on publicly traded companies, while capturing web traffic statistics that reflect the public’s collective interest. Google and Wikipedia have become important “knowledge bases” for investors. In this research, we hypothesize that combining disparate online data sources with traditional time-series and technical indicators for a stock can provide a more effective and intelligent daily trading expert system. Three machine learning models, decision trees, neural networks and support vector machines, serve as the basis for our “inference engine”. To evaluate the performance of our expert system, we present a case study based on the AAPL (Apple NASDAQ) stock. Our expert system had an 85% accuracy in predicting the next-day AAPL stock movement, which outperforms the reported rates in the literature. Our results suggest that: (a) the knowledge base of financial expert systems can benefit from data captured from nontraditional “experts” like Google and Wikipedia; (b) diversifying the knowledge base by combining data from disparate sources can help improve the performance of financial expert systems; and (c) the use of simple machine learning models for inference and rule generation is appropriate with our rich knowledge database. Finally, an intelligent decision making tool is provided to assist investors in making trading decisions on any stock, commodity or index.     

An intelligent stock trading system using comprehensive features

The aim of this study is to predict automatic trading decisions in stock markets. Comprehensive features (CF) for predicting future trend are very difficult to generate in a complex environment, especially in stock markets. According to related work, the relevant stock information can help investors formulate objects that may result in better profits. With this in mind, we present a framework of an intelligent stock trading system using comprehensive features (ISTSCF) to predict future stock trading decisions. The ISTSCF consists of stock information extraction, prediction model learning and stock trading decision. We apply three different methods to generate comprehensive features, including sentiment analysis (SA) that provides sensitive market events from stock news articles for sentiment indices (SI), technical analysis (TA) that yields effective trading rules based on trading information on the stock exchange for technical indices (TI), as well as the trend-based segmentation method (TBSM) that raises trading decisions from stock price for trading signals (TS). Experiments on the Taiwan stock market show that the results of employing comprehensive features are significantly better than traditional methods using numeric features alone (without textual sentiment features).     

A Multiagent Approach to Q-Learning for Daily Stock Trading

The portfolio management for trading in the stock market poses a challenging stochastic control problem of significant commercial interests to finance industry. To date, many researchers have proposed various methods to build an intelligent portfolio management system that can recommend financial decisions for daily stock trading. Many promising results have been reported from the supervised learning community on the possibility of building a profitable trading system. More recently, several studies have shown that even the problem of integrating stock price prediction results with trading strategies can be successfully addressed by applying reinforcement learning algorithms. Motivated by this, we present a new stock trading framework that attempts to further enhance the performance of reinforcement learning-based systems. The proposed approach incorporates multiple Q-learning agents, allowing them to effectively divide and conquer the stock trading problem by defining necessary roles for cooperatively carrying out stock pricing and selection decisions. Furthermore, in an attempt to address the complexity issue when considering a large amount of data to obtain long-term dependence among the stock prices, we present a representation scheme that can succinctly summarize the history of price changes. Experimental results on a Korean stock market show that the proposed trading framework outperforms those trained by other alternative approaches both in terms of profit and risk management.     

网上证券交易系统的时序Petri网描述及验证

基于时序Petri网对我国现行网上静态和动态证券交易系统进行了模拟、形式描述及功能正确性验证.应用时序逻辑推理规则,从形式上严格证明了证券交易系统需求规范及其时序Petri网模型动态行为的一致性.结果表明,时序Petri网能够清楚而简单地描述事件间的因果关系和时序关系以及并发系统中某些与时间有关的重要性质,如最终性和公平性.因此,时序Petri网可作为并发系统形式化描述和分析的有力工具.     

Model-based problem solving for university timetable validation and improvement

Constraint satisfaction problems can be expressed very elegantly in state-based formal methods such as B. But can such specifications be directly used for solving real-life problems? In other words, can a formal model be more than a design artefact but also be used at runtime for inference and problem solving? We will try and answer this important question in the present paper with regard to the university timetabling problem. We report on an ongoing project to build a curriculum timetable validation tool where we use a formal model as the basis to validate timetables from a student’s perspective and to support incremental modification of timetables. In this article we describe the problem domain, the formalization in B and our approach to execute the formal model in a production system using ProB.     

Integration of genetic fuzzy systems and artificial neural networks for stock price forecasting

Stock market prediction is regarded as a challenging task in financial time-series forecasting. The central idea to successful stock market prediction is achieving best results using minimum required input data and the least complex stock market model. To achieve these purposes this article presents an integrated approach based on genetic fuzzy systems (GFS) and artificial neural networks (ANN) for constructing a stock price forecasting expert system. At first, we use stepwise regression analysis (SRA) to determine factors which have most influence on stock prices. At the next stage we divide our raw data into k clusters by means of self-organizing map (SOM) neural networks. Finally, all clusters will be fed into independent GFS models with the ability of rule base extraction and data base tuning. We evaluate capability of the proposed approach by applying it on stock price data gathered from IT and Airlines sectors, and compare the outcomes with previous stock price forecasting methods using mean absolute percentage error (MAPE). Results show that the proposed approach outperforms all previous methods, so it can be considered as a suitable tool for stock price forecasting problems.     

Planning stock portfolios by means of weighted frequent itemsets

Planning stock portfolios is a challenging task, because investors have to forecast stock market trends. To limit losses due to wrong forecasts a common strategy is diversification, which consists in buying stocks belonging to different sectors/markets to spread bets across different assets. Since the amount of stock market data is continuously growing, an appealing research strategy is to first apply data mining algorithms to discover significant patterns from potentially large stock datasets and then exploit them to support investor decision-making.This article presents an itemset-based approach to supporting buy-and-hold investors in technical analyses by automatically identifying promising sets of high-yield yet diversified stocks to buy. Specifically, it investigates the use of itemsets to generate stock portfolios from historical stock data and recommend them for buy-and-hold investments. To achieve this goal, it analyzes stock market datasets, which contain for each stock the closing prices on different trading days. Datasets are enriched with (analyst-provided) taxonomies, which are used to classify stocks as the corresponding sectors. Unlike previous approaches, it generates a model composed of a subset of potentially interesting itemsets, which are then used to support investors in decision-making. The selected itemsets represent promptly usable stock portfolios satisfying expert’s requirements on minimal average return and minimal level of diversification across sectors.The experiments performed on real stock datasets acquired under different market conditions demonstrate the effectiveness of the proposed approach compared to real stock funds.     

A gradient boosting decision tree approach for insider trading identification: An empirical model evaluation of China stock market

Insider trading is a kind of criminal behavior in stock market by using nonpublic information. In recent years, it has become the major illegal activity in China’s stock market. In this study, a combination approach of GBDT (Gradient Boosting Decision Tree) and DE (Differential Evolution) is proposed to identify insider trading activities by using data of relevant indicators. First, insider trading samples occurred from year 2007 to 2017 and corresponding non-insider trading samples are collected. Next, the proposed method is trained by the GBDT, and initial parameters of the GBDT are optimized by the DE. Finally, out-of-samples are classified by the trained GBDT–DE model and its performances are evaluated. The experiment results show that our proposed method performed the best for insider trading identification under time window length of ninety days, indicating the relevant indicators under 90-days time window length are relatively more useful. Additionally, under all three time window lengths, relative importance result shows that several indicators are consistently crucial for insider trading identification. Furthermore, the proposed approach significantly outperforms other benchmark methods, demonstrating that it could be applied as an intelligent system to improve identification accuracy and efficiency for insider trading regulation in China stock market.