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Application of Chart-Aware Neural Networks with Evolving Topology in Forex Trading

January 8, 2013

It is quite hard to find a Forex trader that has tried to automate his trading and has never heard of neural networks. Creating a trading robot that is capable of evolving and learning from the market itself is a very attractive idea. Artificial neural networks used in computation resemble the neural networks in human brain as they are built with multiple interconnected nodes and work as a single system. Their structure allows adaptive learning, which is great for analyzing such complex systems as financial markets.

Today, I present a free download of the article on an interesting case of neural networks’ application in trading, published by Gene I. Sher from the University of Central Florida. In his work, titled Evolving Chart Pattern Sensitive Neural Network Based Forex Trading Agents, the author presents an innovative use of TWEANN (Topology and Weight Evolving Artificial Neural Network), which is able to work with price charts rather than usual linear input to analyze the market, learn and carry out trading decisions. Unlike a normal neural network (NN), whose evolution is based only on connection weights between neurons, TWEANN’s evolution also changes the very connections inside the network. The author tests two hypotheses in his research:

  • The use of NNs with evolving topology is viable in FX trading application.
  • The price chart input NNs are more effective market analysis than linear input NNs.

The article will be very interesting to the developers of expert advisors, especially to those who have tried creating or using NNs (or any other self-learning systems) in trading. It is necessary to mention that the article will seem very confusing if you do not have some basic knowledge of neural networks. On the other hand, there is no difficult math involved, while the concepts that are not explained in there are easily googled about.

Sadly, there are two significant disadvantages in this article. First, it contains quite a few errors. It looks more like a draft rather than a more or less final version. When dealing with such a tough topic, additional obstacles in form of grammatical errors do not help at all. Second, Sher is using only one (and rather short too) period of EUR/USD chart history to train and test his NNs. The results would be more reliable and informative if he used several longer periods across different currency pairs. But despite these cons, I still highly recommend it to any trader who seeks to find out more about neural networks:


If you have any questions, comments or suggestions regarding this e-book or about adding more free books to EarnForex.com, please feel free to post them in the comments below.

2 Responses to “Application of Chart-Aware Neural Networks with Evolving Topology in Forex Trading”

  1. Eric D

    That is a trader’s utopic research project, the holy grail of trading, just as with many Expert Advisors, the task is pretty much the same, the reach for a tradig robot that makes its owner millionaire with no further effort than the creation of the robot itself (Artificial intelligence whatsoever), nevertheless as you mention, it is still soon to declare this a successful experiment as it is to withstand the test of time and development for the always evolving market conditions, as you stated the short time period used is no indicative of future success, in any way, a very interesting read, regards!

    Reply

  2. JohnMill

    Your blogposts are indeed very interesting and insightful.Thank you for your detailed technical analysis.

    Reply

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