From Patterns to Predictions: A Shapelet-Based Framework for Directional Forecasting in Noisy Financial Markets

• URL: http://arxiv.org/abs/2509.15040v1
• Date: Thu, 18 Sep 2025 15:05:27 GMT
• Title: From Patterns to Predictions: A Shapelet-Based Framework for Directional Forecasting in Noisy Financial Markets
• Authors: Juwon Kim, Hyunwook Lee, Hyotaek Jeon, Seungmin Jin, Sungahn Ko,
• Abstract summary: Directional forecasting in financial markets requires both accuracy and interpretability.<n>We propose a two-stage framework that integrates unsupervised pattern extracion with interpretable forecasting.<n>Our approach enables transparent decision-making by revealing the underlying pattern structures that drive predictive outcomes.
• Score: 8.168261768703621
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: Directional forecasting in financial markets requires both accuracy and interpretability. Before the advent of deep learning, interpretable approaches based on human-defined patterns were prevalent, but their structural vagueness and scale ambiguity hindered generalization. In contrast, deep learning models can effectively capture complex dynamics, yet often offer limited transparency. To bridge this gap, we propose a two-stage framework that integrates unsupervised pattern extracion with interpretable forecasting. (i) SIMPC segments and clusters multivariate time series, extracting recurrent patterns that are invariant to amplitude scaling and temporal distortion, even under varying window sizes. (ii) JISC-Net is a shapelet-based classifier that uses the initial part of extracted patterns as input and forecasts subsequent partial sequences for short-term directional movement. Experiments on Bitcoin and three S&P 500 equities demonstrate that our method ranks first or second in 11 out of 12 metric--dataset combinations, consistently outperforming baselines. Unlike conventional deep learning models that output buy-or-sell signals without interpretable justification, our approach enables transparent decision-making by revealing the underlying pattern structures that drive predictive outcomes.

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