Better Strategies 5: A Short-Term Machine Learning System

It’s time for the 5th and final part of the Build Better Strategies series. In part 3 we’ve discussed the development process of a model-based system, and consequently we’ll conclude the series with developing a data-mining system. The principles of data mining and machine learning have been the topic of part 4. For our short-term trading example we’ll use a deep learning algorithm, a stacked autoencoder, but it will work in the same way with many other machine learning algorithms. With today’s software tools, only about 20 lines of code are needed for a machine learning strategy. I’ll try to explain all steps in detail.  Continue reading “Better Strategies 5: A Short-Term Machine Learning System”

Build Better Strategies! Part 3: The Development Process

This is the third part of the Build Better Strategies series. In the previous part we’ve discussed the 10 most-exploited market inefficiencies and gave some examples of their trading strategies. In this part we’ll analyze the general process of developing a model-based trading system. As almost anything, you can do trading strategies in (at least) two different ways: There’s the ideal way, and there’s the real way. We begin with the ideal development process, broken down to 10 steps. Continue reading “Build Better Strategies! Part 3: The Development Process”

Better Tests with Oversampling

The more data you use for testing or training your strategy, the less bias will affect the test result and the more accurate will be the training. The problem: price data is always in short supply. Even shorter when you must put aside some part for out-of-sample tests. Extending the test or training period far into the past is not always a solution. The markets of the 1990s or 1980s were very different from today, so their price data can cause misleading results.
   In this article I’ll describe a simple method to produce more trades for testing, training, and optimizing from the same amount of price data. The method is tested with a price action system based on data mining price patterns. Continue reading “Better Tests with Oversampling”