Interpretable ML-driven Strategy for Automated Trading Pattern Extraction

• URL: http://arxiv.org/abs/2103.12419v1
• Date: Tue, 23 Mar 2021 09:55:46 GMT
• Title: Interpretable ML-driven Strategy for Automated Trading Pattern Extraction
• Authors: Artur Sokolovsky, Luca Arnaboldi, Jaume Bacardit, Thomas Gross
• Abstract summary: We propose a volume-based data pre-processing method for financial time series analysis. We use a statistical approach for assessing the performance of the method. Our analysis shows that the proposed method allows successful classification of the financial time series patterns.
• Score: 2.7910505923792646
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: Financial markets are a source of non-stationary multidimensional time series which has been drawing attention for decades. Each financial instrument has its specific changing over time properties, making their analysis a complex task. Improvement of understanding and development of methods for financial time series analysis is essential for successful operation on financial markets. In this study we propose a volume-based data pre-processing method for making financial time series more suitable for machine learning pipelines. We use a statistical approach for assessing the performance of the method. Namely, we formally state the hypotheses, set up associated classification tasks, compute effect sizes with confidence intervals, and run statistical tests to validate the hypotheses. We additionally assess the trading performance of the proposed method on historical data and compare it to a previously published approach. Our analysis shows that the proposed volume-based method allows successful classification of the financial time series patterns, and also leads to better classification performance than a price action-based method, excelling specifically on more liquid financial instruments. Finally, we propose an approach for obtaining feature interactions directly from tree-based models on example of CatBoost estimator, as well as formally assess the relatedness of the proposed approach and SHAP feature interactions with a positive outcome.

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