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Evolving trading strategies using directional changes

Kampouridis, Michael and Otero, Fernando EB (2017) 'Evolving trading strategies using directional changes.' Expert Systems with Applications, 73. 145 - 160. ISSN 0957-4174

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Abstract

The majority of forecasting methods use a physical time scale for studying price fluctuations of financial markets, making the flow of physical time discontinuous. Therefore, using a physical time scale may expose companies to risks, due to ignorance of some significant activities. In this paper, an alternative and original approach is explored to capture important activities in the market. The main idea is to use an event-based time scale based on a new way of summarising data, called Directional Changes. Combined with a genetic algorithm, the proposed approach aims to find a trading strategy that maximises profitability in foreign exchange markets. In order to evaluate its efficiency and robustness, we run rigorous experiments on 255 datasets from six different currency pairs, consisting of intra-day data from the foreign exchange spot market. The results from these experiments indicate that our proposed approach is able to generate new and profitable trading strategies, significantly outperforming other traditional types of trading strategies, such as technical analysis and buy and hold.

Item Type: Article
Uncontrolled Keywords: Directional changes; Financial forecasting; Algorithmic trading; Genetic algorithm
Divisions: Faculty of Science and Health > Computer Science and Electronic Engineering, School of
Depositing User: Elements
Date Deposited: 27 Jan 2021 14:06
Last Modified: 27 Jan 2021 14:07
URI: http://repository.essex.ac.uk/id/eprint/28511

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