Automatic trading method based on piecewise aggregate approximation and multi-swarm of improved self-adaptive particle swarm optimization with validation

摘要

Financial time series represent the stock prices over time and exhibit behavior similar to a data stream. Many works report on the use of data mining techniques to predict the future direction of stock prices and to discover patterns in the time series data to provide decision support for trading operations. Traditional optimization methods do not take into account the possibility that the function to be optimized, namely, the final financial balance for operations considering some stock, may have multiple peaks, i.e., be represented by multimodal functions. However, multimodality is a known feature of real-world financial time series optimization problems. To deal with this issue, this article proposes the PAA-MS-IDPSO-V approach (Piece wise Aggregate Approximation - Multi-Swarm of Improved Self-adaptive Particle Swarm Optimization with Validation). The proposed method aims to find patterns in financial time series to support investment decisions. The approach uses multi-swarms to obtain a better particle initialization for the final optimization phase since it aims to tackle multimodal problems. Furthermore, it uses a validation set with early stopping to avoid overfitting. The patterns discovered by the method are used together with investment rules to support decisions and thus help investors to maximize the profit in their operations in the stock market. The experiments reported in this paper compare the results obtained by the proposed model with the Buy-and-Hold, PM-IDPSO approaches and another approach found in the literature. We report on experiments conducted with S&P100 index stocks and using the Friedman Non-Parametric Test with the Nemenyi post-hoc Test both with 95% confidence level. The results show that the proposed model outperformed the competing methods and was able to considerably reduce the variance for all stocks. (C) 2017 Elsevier B.V. All rights reserved.