An Intelligent Hybrid Trading System for Discovering Trading Rules for the Futures Market using Rough Sets and Genetic Algorithms

Abstract

Discovering intelligent technical trading rules from nonlinear and complex stock market data, and then developing decision support trading systems, is an important challenge. The objective of this study is to develop an intelligent hybrid trading system for discovering technical trading rules using rough set analysis and a genetic algorithm (GA). In order to obtain better trading decisions, a novel rule discovery mechanism using a GA approach is proposed for solving optimization problems (i.e., data discretization and reducts) of rough set analysis when discovering technical trading rules for the futures market. Experiments are designed to test the proposed model against comparable approaches (i.e., random, correlation, and GA approaches). In addition, these comprehensive experiments cover most of the current trading system topics, including the use of a sliding window method (with or without validation dataset), the number of trading rules, and the size of training period. To evaluate an intelligent hybrid trading system, experiments were carried out on the historical data of the Korea Composite Stock Price Index 200 (KOSPI 200) futures market. In particular, trading performance is analyzed according to the number of sets of decision rules and the size of the training period for discovering trading rules for the testing period. The results show that the proposed model significantly outperforms the benchmark model in terms of the average return and as a risk-adjusted measure.

Department(s)

Engineering Management and Systems Engineering

Research Center/Lab(s)

Intelligent Systems Center

Keywords and Phrases

Commerce; Decision support systems; Financial markets; Genetic algorithms; Optimization; Risk assessment; Rough set theory; Data discretization; Decision supports; Optimization problems; Rough set analysis; Sliding window methods; Technical trading rules; Trading rules; Trading systems; Electronic trading; Discovering trading rules; Futures market; Intelligent hybrid trading system; Rough sets

International Standard Serial Number (ISSN)

1568-4946

Document Type

Article - Journal

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2017 Elsevier, All rights reserved.

Publication Date

01 Jun 2017

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