Evolutionary Money Management
This paper evolves trading strategies using genetic programming on high-frequency tick data of the USD/EUR exchange rate covering the calendar year 2006. This paper proposes a novel quad tree structure for trading system design.
The architecture consists of four trees each solving a separate task, but mutually dependent for overall performance. Specifically, the functions of the trees are related to initiating (“entry”) and terminating (“exit”) long and short positions. Thus, evaluation is contingent on the current market position. Using this architecture the paper investigates the effects of money management. Money management refers to certain measures that traders use to control risk and take profits, but it is found that it has a detrimental effects on performance.
KeywordsExchange Rate Genetic Programming Trading Strategy Loss Aversion Foreign Exchange Market
Unable to display preview. Download preview PDF.
- 4.Dacorogna, M.M., Gencay, R., Müller, U.A., Olsen, R.B., Pictet, O.V.: An Introduction to High-Frequency Finance. Academic Press, London (2001)Google Scholar
- 7.Jonsson, H., Madjidi, P., Nordahl, M.G.: Evolution of trading rules for the FX market or how to make money out of GP, Technical report, Institute of Theoretical Physics, Chalmers University of Technology (1997)Google Scholar
- 9.LeBaron, B.: Technical trading profitability in foreign exchange markets in the 1990’s, Technical report, Brandeis University (2002)Google Scholar
- 12.Menkhoff, L., Taylor, M.P.: The obstinate of foreign exchange professionals: Technical analysis (2006)Google Scholar
- 13.Neely, C.J., Weller, P.A.: Intraday technical trading in the foreign exchange market, Technical report, Federal Reserve Bank of St Louis (1999)Google Scholar
- 15.Saks, P., Maringer, D.: Evolutionary money management, Technical report, Centre for Computational Finance and Economic Agents, University of Essex (2008)Google Scholar
- 16.Saks, P., Maringer, D.: Genetic programming in statistical arbitrage. In: Giacobini, M., Brabazon, A., Cagnoni, S., Di Caro, G.A., Drechsler, R., Ekárt, A., Esparcia-Alcázar, A.I., Farooq, M., Fink, A., McCormack, J., O’Neill, M., Romero, J., Rothlauf, F., Squillero, G., Uyar, A.Ş., Yang, S. (eds.) EvoWorkshops 2008. LNCS, vol. 4974, pp. 73–82. Springer, Heidelberg (2008)CrossRefGoogle Scholar