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Try picking issues to model that are somewhat volatile or cyclic. If the price movements don’t repeat, there is no chance that your repeating patterns will result in repeating price movements. In other words, don’t get hung up on predicting certain issues. Pick ones with patterns.
Don’t pick issues that are driven primarily by fundamental variables if you are using technical variables.
Don’t go back too far in time if doing so is likely to mean the input patterns found during training will be substantially different from those showing up today. Even if you have great inputs that are normalized over time, it is likely that as markets change, so does the effectiveness of your input variables.
A related issue is expecting your neural net, or other model, to backtest (or walk-forward) profitably a long period of time. We think that is very unrealistic. If it would have worked profitably over the last year, we think that’s probably enough. It may not be perfect, but it’s probably good enough to trade. Don’t insist on the perfect wave before you surf, or you may never get wet! Sure you’ll wipe out sometimes, but at least you’ll be learning to ride the waves.
More on the Odds – Don’t Put all of Your Eggs in One Basket
We mentioned earlier that it is effective to use multiple issues or multiple models. Below are some ways that can be accomplished. Your trading strategy (how you trade with your models) may be as important as the models themselves.
We know that no model will be perfect in the financial arena. For some issues it will work, and for some it will not. It may even be the case that the issues it works well with will not be consistently the same. Fortunately, the NeuroShell Trader has a feature wherein you only need to build your indicators and predictions once to apply them to a whole series of your favorite issues. You just place these issues in different pages of the same chart. Then on a given day, adopt a trading strategy like purchasing the top 10% as predicted by the model, and selling the bottom 10%. See Example Charts 17 and 18.
Design a trading strategy that does not depend on one model, even for a given issue. The NeuroShell Trader is the best vehicle ever invented for pursuing strategies with multiple models. The power is there, use it! You use it by building indicators that query multiple predictions built differently, and using those indicators in your trading strategies. These strategies could be as simple as buying only when two out of three predictions indicate a price rise. See Example chart 19.
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