Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/65005
Title: Stock trading rule discovery with an evolutionary trend following model
Authors: Hu, Y
Feng, B
Zhang, X
Ngai, EWT 
Liu, M
Keywords: Evolutionary trend following algorithm (eTrend)
eXtended Classifier System (XCS)
Trading rule discovery
Concept drift
Issue Date: 2015
Publisher: Pergamon Press
Source: Expert systems with applications, 2015, v. 42, no. 1, p. 212-222 How to cite?
Journal: Expert systems with applications 
Abstract: Evolutionary learning is one of the most popular techniques for designing quantitative investment (QI) products. Trend following (TF) strategies, owing to their briefness and efficiency, are widely accepted by investors. Surprisingly, to the best of our knowledge, no related research has investigated TF investment strategies within an evolutionary learning model. This paper proposes a hybrid long-term and short-term evolutionary trend following algorithm (eTrend) that combines TF investment strategies with the eXtended Classifier Systems (XCS). The proposed eTrend algorithm has two advantages: (1) the combination of stock investment strategies (i.e., TF) and evolutionary learning (i.e., XCS) can significantly improve computation effectiveness and model practicability, and (2) XCS can automatically adapt to market directions and uncover reasonable and understandable trading rules for further analysis, which can help avoid the irrational trading behaviors of common investors. To evaluate eTrend, experiments are carried out using the daily trading data stream of three famous indexes in the Shanghai Stock Exchange. Experimental results indicate that eTrend outperforms the buy-and-hold strategy with high Sortino ratio after the transaction cost. Its performance is also superior to the decision tree and artificial neural network trading models. Furthermore, as the concept drift phenomenon is common in the stock market, an exploratory concept drift analysis is conducted on the trading rules discovered in bear and bull market phases. The analysis revealed interesting and rational results. In conclusion, this paper presents convincing evidence that the proposed hybrid trend following model can indeed generate effective trading guidance for investors.
URI: http://hdl.handle.net/10397/65005
ISSN: 0957-4174
EISSN: 1873-6793
DOI: 10.1016/j.eswa.2014.07.059
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