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Trend Recalling Algorithm for Automated Online Trading in Stock Market

Simon Fong1, Jackie Tai1, and Pit Pichappan2
1. Department of Computer and Information Science,University of Macau,Taipa, Macau SAR
2. School of Information Systems, Al Imam University,Riyadh, Saudi Arabia
Abstract—Unlike financial forecasting, a type of mechanical trading technique called Trend Following (TF) doesn’t predict any market movement; instead it identifies a trend at early time of the day, and trades automatically afterwards by a pre-defined strategy regardless of the moving market directions during run time. Trend following trading has a long and successful history among speculators. The traditional TF trading method is by human judgment in setting the rules (aka the strategy). Subsequently the TF strategy is executed in pure objective operational manner. Finding the correct strategy at the beginning is crucial in TF. This usually involves human intervention in first identifying a trend, and configuring when to place an order and close it out, when certain conditions are met. In this paper, we presented a new type of TF, namely Trend Recalling algorithm that operates in a totally automated manner. It works by partially matching the current trend with one of the proven successful patterns from the past. Our experiments based on real stock market data show that this algorithm has an edge over the other trend following methods in profitability. The new algorithm is also compared to time-series forecasting type of stock trading, and it can even outperform the best forecasting type in a simulation.

Index Termstrend following algorithm, automated stock market trading  

Cite: Simon Fong, Jackie Tai, and Pit Pichappan, "Trend Recalling Algorithm for Automated Online Trading in Stock Market," Journal of Emerging Technologies in Web Intelligence, Vol. 4, No. 3, pp. 240-251, August 2012. doi:10.4304/jetwi.4.3.240-251
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