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Abstract - Financial markets are generally considered techniques [1] and time series analysis used for
as dynamic entities behaving in a random and chaotic forecasting the series, they fail when the series
manner posing a challenging problem to equity, becomes complex [2]. The stock market is non-linear
commodity and currency forecasters. Adoption and chaotic.
ofartificial neural network techniques to forecast such
financial marketshas been resorted to by many, B. Artificial Neural Network (ANN)
howeverwith many shortcomings. The present paper Artificial neural network techniques have become
proposes a new model to address the above via a popular for forecasting because of their non-
synthesis of integration of a live trading system, parametric approach and for their ability to learn when
marketcrash factors and liquidity parameters with the properly trained. Neural net- works have the ability to
help of chaos theory of physics and financial, find patterns and irregularities as well as detecting
technical analysis. multidimensional non-linear connections in data [3].
Keywords - ANN, Chaos theory, Stock Prediction, Artificial Neural networks outperform the
Integrated model. statisticaltechniques in forecasting stock prices [4]. It
is extremely useful for modelling dynamical systems
I. INTRODUCTION like the stock market, futures market, commodity
market and the currency market. The strengths of
A. Stock market fundamentals Artificial neural networks are its ability to solve data-
Stock market forecasting is based on fundamental and intensive problems, rapid prototyping, adaptation,
technical analysis. Fundamental analysis is a stock learning and scalability. Artificial neural networks
valuation method which uses economic and financial have been applied to diverse areas like Bankruptcy
analysis to predict stock price movements. forecasting, Image processing, Signal processing,
Fundamental analyst examines the current and future Healthcare, Drug development, Intrusion detection
health of the whole economy by analysing data like and in Communication.
money supply, interest rate, inflation and the financial The most popular architecture applying for financial
data of the company like Price/Earnings ratio, book to market is the multilayer feed-forward neural networks.
the market ratio, dividend yield. Generally (Fig. 1) A standard Neural Network has at least three
fundamental analysis is suitable for long term layers. The first layer is called the input layer. The last
investors who have a buy and hold strategy. Technical layer is called the output layer. An intermediary layer
analysis is based on the premise that patterns repeat of nodes, the hidden layer, separates the input from the
regularly and makeuse of past patterns to predict the output layer. The number of nodes defines the amount
future. Technical analysis is specifically important for of complexity the model is capable of fitting. Each
traders with very short time horizon (could be intra- node of one layer has connections to all the other
day, couple of days or few weeks). In both the nodes of the next layer. The term back propagation
methods neural networks have been effectively used to is a form of supervised learning which trainsthe neural
forecast. Anyone who is trading in the market will network. Weights of various layers are adjusted
have a strong opinion that the market is chaotic and backwards from the output layer back to the input
random and the market is affected by a number of layer.
factors. Statistical tools like multiple regression
Training ANN with stock market data involves Pre of investors in the stock market by offering more
and post data processing issues such as selecting, accurate stock prediction compared to existing
sampling, cleaning, filtering, de noising, normalizing, technical analysis based approach. The strategies for
deseasonalising, validating, optimizing data for improving accuracy are hybrid analysis, choice of
training ANN, for stock market data. The selection of inputs, training ANN with stock market data and ANN
appropriate number of hidden layers, number of component optimization. Although ANN are popular
neurons in each layer, size of the training set, initial their use in real world scenarios for making trading
values for weights, inputs to be included, activation profits is still under studied. One feature to assess the
function arethe key design issues of a ANN model. quality of ANN model development is to integrate the
Parameter setting should be done by hit and trial ANN to a live trading system. An automated trading
method. Targets in ANN stock market models should system is required where the predictions are converted
be considered along with the target application. For into buy and sell decisions for both day-trade, weekly
example, stock market trend prediction and stock and long term trade. One of the problems associated
market prediction may require different ANN models with classical ANN stock forecasting models are that
and data. Targets in the stock market may be they are not able to forecast crashes which could be
predicting market indices, market trend, market great profit making opportunities for investors. It is
volatility, buy-hold-sell, high- low risk-return necessary that the ANN have that capability. Liquidity
classification, best to worst stock for trading strategy factor also plays an important role in the markets
and so on. The forecasting may be for long term, short because the market has got integrated. Any boom or
term, given period, or instant. It may be for a stock or crisis in any part of the globe has wide ramifications
a sector. Identifying the most suitable ANN model and across global markets. Moreover, hedge fund activity,
data for a specific prediction target will enhance the foreign institutional investors (FIIs) are an important
accuracy. Further one can divide the complex stock factor, so we have considered variables like FII inflow
market prediction tasks into simpler subtasks, perform short term currency movements.
the task and integrate the results to get better
performance In these direction the proposed new hybrid model
forpredictions is done through integrating three ANN
blocks