Developing a Rule Change Trading System for the Futures Market using Rough Set Analysis

Abstract

Many technical indicators have been selected as input variables in order to develop an automated trading system that determines buying and selling trading decision using optimal trading rules within the futures market. However, optimal technical trading rules alone may not be sufficient for real-world application given the endlessly changing futures market. In this study, a rule change trading system (RCTS) that consists of numerous trading rules generated using rough set analysis is developed in order to cover diverse market conditions. To change the trading rules, a rule change mechanism based on previous trading results is proposed. Simultaneously, a genetic algorithm is employed with the objective function of maximizing the payoff ratio to determine the thresholds of market timing for both buying and selling in the futures market. An empirical study of the proposed system was conducted in the Korea Composite Stock Price Index 200 (KOSPI 200) futures market. The proposed trading system yields profitable results as compared to both the buy-and-hold strategy, and a system not utilizing a genetic algorithm for maximizing the payoff ratio.

Department(s)

Engineering Management and Systems Engineering

Research Center/Lab(s)

Intelligent Systems Center

Keywords and Phrases

Commerce; Financial markets; Genetic algorithms; Rough set theory; Automated trading systems; Buy-and-hold strategy; Empirical studies; Objective functions; Rough set analysis; Technical indicator; Technical trading rules; Trading systems; Electronic trading; Futures market; Rough set; Rule change trading system

International Standard Serial Number (ISSN)

0957-4174

Document Type

Article - Journal

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2016 Elsevier, All rights reserved.

Publication Date

01 Oct 2016

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