Machine Learning Algorithms for Trading

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Lesson 1: How Machine Learning is used at a hedge fund

  • introduce problem early
  • Overview of use and backtesting
    • Out of sample
    • Roll forward cross validation
  • Methods
    • Linear regression
    • KNN regression
    • Decision trees Random Forest regression (considering to drop)
  • Quiz: which algorithm makes most sense here?
  • Supervised ML (intent is that the treatment here is light)
    • Use: Regression
    • Use: Classification
    • Model type: Parametric
    • Model type: Instance-based
  • Quiz: What's the next point?
  • Problems with regression for finance
    • Hint at reinforcement learning
  • Introduce the problem we will focus on in the rest of the class, namely:
    • Example data, will learn on over a particular year (2012)
    • Will test on over the next two years (2013 2014)
    • It will be "easy" data that has obvious patterns
    • You will create trades.txt and run them through your backtester

Lesson 2: Regression

[note: need to create fake stock data that has embedded patterns]

  • Definition of the problem 1
    • Black box diagram
    • training: Xtrain, Ytrain
    • using: Query with X
  • Definition of the problem 2: APIs
    • constructor
    • addEvidence(X,Y)
    • query(X)
  • How to implement linear regression

Lesson 3: K Nearest Neighbor (KNN)

Lesson 4: Assessing a learning algorithm

  • Now that we have two, (linreg & KNN), let's compare them
  • RMS error
  • Scatterplot predict vs actual
  • Corrcoef
  • Overfitting
  • Cross validation

Lesson 5: Ensemble learners, bagging and boosting

perhaps include decision trees

Lesson 6: Reinforcement Learning

  • Classic view of the problem (from Kaelbling, Littman, Moore)
  • Model-based
  • Model-free

Lesson 7: Q-Learning

Lesson 8: Dyna