machine learning in FOREX (part one: establishing a performance baseline)

Introduction

We’ve been applying machine learning to FOREX price prediction. The performance of our models varies widely, so to establish a baseline we created a simple linear regression model with which we can compare performance of more sophisticated models against.

What We Are Trying To Do

Given a time-series of 26 four-hour price samples, we want to predict the maximum price reached in the next ten four-hour periods. Schematically, after normalization, this looks like:

Linear Regression

We create a linear regression model mapping the features to the max price reached. (The exact features we use are “secret sauce”—trade secret, for now). Running the model on a withheld test set produces the following known vs. predicted plot:

Not great performance; we hope to improve significantly upon these results using machine learning. However, cross-validation demonstrates that this model operates consistently, always a good thing:

Post Author: badassdatascience

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