System for foreign exchange trading using genetic algorithms and reinforcement learning

Foreign exchange trading has emerged recently as a significant activity in many countries. As with most forms of trading, the activity is influenced by many random parameters so that the creation of a system that effectively emulates the trading process will be very helpful. A major issue for traders in the deregulated Foreign Exchange Market is when to sell and when to buy a particular currency in order to maximize profit. This paper presents novel trading strategies based on the machine learning methods of genetic algorithms and reinforcement learning.

GANN: Genetic algorithm neural networks for the detection of conserved combinations of features in DNA

Background: The multitude of motif detection algorithms developed to date have largely focused on the detection of patterns in primary sequence. Since sequence-dependent DNA structure and flexibility may also play a role in protein-DNA interactions, the simultaneous exploration of sequence-and structure-based hypotheses about the composition of binding sites and the ordering of features in a regulatory region should be considered as well. The consideration of structural features requires the development of new detection tools that can deal with data types other than primary sequence. Results: GANN ( available at http://bioinformatics.org.au/gann) is a machine learning tool for the detection of conserved features in DNA. The software suite contains programs to extract different regions of genomic DNA from flat files and convert these sequences to indices that reflect sequence and structural composition or the presence of specific protein binding sites. The machine learning component allows the classification of different types of sequences based on subsamples of these indices, and can identify the best combinations of indices and machine learning architecture for sequence discrimination. Another key feature of GANN is the replicated splitting of data into training and test sets, and the implementation of negative controls. In validation experiments, GANN successfully merged important sequence and structural features to yield good predictive models for synthetic and real regulatory regions. Conclusion: GANN is a flexible tool that can search through large sets of sequence and structural feature combinations to identify those that best characterize a set of sequences.

The applicability of recurrent neural networks for biological sequence analysis

Selection of machine learning techniques requires a certain sensitivity to the requirements of the problem. In particular, the problem can be made more tractable by deliberately using algorithms that are biased toward solutions of the requisite kind. In this paper, we argue that recurrent neural networks have a natural bias toward a problem domain of which biological sequence analysis tasks are a subset. We use experiments with synthetic data to illustrate this bias. We then demonstrate that this bias can be exploitable using a data set of protein sequences containing several classes of subcellular localization targeting peptides. The results show that, compared with feed forward, recurrent neural networks will generally perform better on sequence analysis tasks. Furthermore, as the patterns within the sequence become more ambiguous, the choice of specific recurrent architecture becomes more critical.

A class of self-stabilizing MCA learning algorithms

In this letter, we propose a class of self-stabilizing learning algorithms for minor component analysis (MCA), which includes a few well-known MCA learning algorithms. Self-stabilizing means that the sign of the weight vector length change is independent of the presented input vector. For these algorithms, rigorous global convergence proof is given and the convergence rate is also discussed. By combining the positive properties of these algorithms, a new learning algorithm is proposed which can improve the performance. Simulations are employed to confirm our theoretical results.

Statistical racing techniques for improved empirical evaluation of evolutionary algorithms

In empirical studies of Evolutionary Algorithms, it is usually desirable to evaluate and compare algorithms using as many different parameter settings and test problems as possible, in border to have a clear and detailed picture of their performance. Unfortunately, the total number of experiments required may be very large, which often makes such research work computationally prohibitive. In this paper, the application of a statistical method called racing is proposed as a general-purpose tool to reduce the computational requirements of large-scale experimental studies in evolutionary algorithms. Experimental results are presented that show that racing typically requires only a small fraction of the cost of an exhaustive experimental study.

On building a principled framework for evaluating and testing evolutionary algorithms: A continuous landscape generator

In this paper, we address some issue related to evaluating and testing evolutionary algorithms. A landscape generator based on Gaussian functions is proposed for generating a variety of continuous landscapes as fitness functions. Through some initial experiments, we illustrate the usefulness of this landscape generator in testing evolutionary algorithms.

An implementation of genetic algorithms as a basis for a trading system on the foreign exchange market

Foreign exchange trading has emerged in recent times as a significant activity in many countries. As with most forms of trading, the activity is influenced by many random parameters so that the creation of a system that effectively emulates the trading process is very helpful. In this paper, we try to create such a system with a genetic algorithm engine to emulate trader behaviour on the foreign exchange market and to find the most profitable trading strategy.

Time trials on second-order and variable-learning-rate algorithms

The performance of seven minimization algorithms are compared on five neural network problems. These include a variable-step-size algorithm, conjugate gradient, and several methods with explicit analytic or numerical approximations to the Hessian.

Description and training of neural network dynamics

Attractor properties of a popular discrete-time neural network model are illustrated through numerical simulations. The most complex dynamics is found to occur within particular ranges of parameters controlling the symmetry and magnitude of the weight matrix. A small network model is observed to produce fixed points, limit cycles, mode-locking, the Ruelle-Takens route to chaos, and the period-doubling route to chaos. Training algorithms for tuning this dynamical behaviour are discussed. Training can be an easy or difficult task, depending whether the problem requires the use of temporal information distributed over long time intervals. Such problems require training algorithms which can handle hidden nodes. The most prominent of these algorithms, back propagation through time, solves the temporal credit assignment problem in a way which can work only if the relevant information is distributed locally in time. The Moving Targets algorithm works for the more general case, but is computationally intensive, and prone to local minima.

Neural networks

An overview of neural networks, covering multilayer perceptrons, radial basis functions, constructive algorithms, Kohonen and K-means unupervised algorithms, RAMnets, first and second order training methods, and Bayesian regularisation methods.

Neural networks: A principled perspective

Introductory accounts of artificial neural networks often rely for motivation on analogies with models of information processing in biological networks. One limitation of such an approach is that it offers little guidance on how to find optimal algorithms, or how to verify the correct performance of neural network systems. A central goal of this paper is to draw attention to a quite different viewpoint in which neural networks are seen as algorithms for statistical pattern recognition based on a principled, i.e. theoretically well-founded, framework. We illustrate the concept of a principled viewpoint by considering a specific issue concerned with the interpretation of the outputs of a trained network. Finally, we discuss the relevance of such an approach to the issue of the validation and verification of neural network systems.

On-line learning in multilayer neural networks

We present an analytic solution to the problem of on-line gradient-descent learning for two-layer neural networks with an arbitrary number of hidden units in both teacher and student networks. The technique, demonstrated here for the case of adaptive input-to-hidden weights, becomes exact as the dimensionality of the input space increases.

Using ancillary statistics in on-line learning algorithms

Neural networks are usually curved statistical models. They do not have finite dimensional sufficient statistics, so on-line learning on the model itself inevitably loses information. In this paper we propose a new scheme for training curved models, inspired by the ideas of ancillary statistics and adaptive critics. At each point estimate an auxiliary flat model (exponential family) is built to locally accommodate both the usual statistic (tangent to the model) and an ancillary statistic (normal to the model). The auxiliary model plays a role in determining credit assignment analogous to that played by an adaptive critic in solving temporal problems. The method is illustrated with the Cauchy model and the algorithm is proved to be asymptotically efficient.

Topographic mappings and feed-forward neural networks

This thesis is a study of the generation of topographic mappings - dimension reducing transformations of data that preserve some element of geometric structure - with feed-forward neural networks. As an alternative to established methods, a transformational variant of Sammon's method is proposed, where the projection is effected by a radial basis function neural network. This approach is related to the statistical field of multidimensional scaling, and from that the concept of a 'subjective metric' is defined, which permits the exploitation of additional prior knowledge concerning the data in the mapping process. This then enables the generation of more appropriate feature spaces for the purposes of enhanced visualisation or subsequent classification. A comparison with established methods for feature extraction is given for data taken from the 1992 Research Assessment Exercise for higher educational institutions in the United Kingdom. This is a difficult high-dimensional dataset, and illustrates well the benefit of the new topographic technique. A generalisation of the proposed model is considered for implementation of the classical multidimensional scaling (¸mds}) routine. This is related to Oja's principal subspace neural network, whose learning rule is shown to descend the error surface of the proposed ¸mds model. Some of the technical issues concerning the design and training of topographic neural networks are investigated. It is shown that neural network models can be less sensitive to entrapment in the sub-optimal global minima that badly affect the standard Sammon algorithm, and tend to exhibit good generalisation as a result of implicit weight decay in the training process. It is further argued that for ideal structure retention, the network transformation should be perfectly smooth for all inter-data directions in input space. Finally, there is a critique of optimisation techniques for topographic mappings, and a new training algorithm is proposed. A convergence proof is given, and the method is shown to produce lower-error mappings more rapidly than previous algorithms.

Estimating conditional volatility with neural networks

It is well known that one of the obstacles to effective forecasting of exchange rates is heteroscedasticity (non-stationary conditional variance). The autoregressive conditional heteroscedastic (ARCH) model and its variants have been used to estimate a time dependent variance for many financial time series. However, such models are essentially linear in form and we can ask whether a non-linear model for variance can improve results just as non-linear models (such as neural networks) for the mean have done. In this paper we consider two neural network models for variance estimation. Mixture Density Networks (Bishop 1994, Nix and Weigend 1994) combine a Multi-Layer Perceptron (MLP) and a mixture model to estimate the conditional data density. They are trained using a maximum likelihood approach. However, it is known that maximum likelihood estimates are biased and lead to a systematic under-estimate of variance. More recently, a Bayesian approach to parameter estimation has been developed (Bishop and Qazaz 1996) that shows promise in removing the maximum likelihood bias. However, up to now, this model has not been used for time series prediction. Here we compare these algorithms with two other models to provide benchmark results: a linear model (from the ARIMA family), and a conventional neural network trained with a sum-of-squares error function (which estimates the conditional mean of the time series with a constant variance noise model). This comparison is carried out on daily exchange rate data for five currencies.