How Is Machine Learning Used in Trading? (AEX Index Stock Forecast)

Stock prediction with data mining techniques is one of the most important issues in finance being investigated by researchers across the globe. Data mining techniques can be used extensively in the financial markets to help investors make qualitative decision. One of the techniques is artificial neural network (ANN). However, in the application of ANN for predicting the financial market the use of technical analysis variables for stock prediction is predominant. In this paper, we present a hybridized approach which combines the use of the variables of technical and fundamental analysis of stock market indicators for prediction of future price of stock in order to improve on the existing approaches. We evaluate AEX Index prediction models with Modular Neural Network (Market News Sentiment Analysis) and Chi-Square^1,2,3,4 and conclude that the AEX Index stock is predictable in the short/long term. According to price forecasts for (n+1 year) period: The dominant strategy among neural network is to Sell AEX Index stock.

Keywords: AEX Index, AEX Index, stock forecast, machine learning based prediction, risk rating, buy-sell behaviour, stock analysis, target price analysis, options and futures.

Key Points

1. What are the most successful trading algorithms?
2. How do you know when a stock will go up or down?
3. Can machine learning predict?

AEX Index Target Price Prediction Modeling Methodology

Accurate stock market prediction is of great interest to investors; however, stock markets are driven by volatile factors such as microblogs and news that make it hard to predict stock market index based on merely the historical data. The enormous stock market volatility emphasizes the need to effectively assess the role of external factors in stock prediction. Stock markets can be predicted using machine learning algorithms on information contained in social media and financial news, as this data can change investors' behavior. We consider AEX Index Stock Decision Process with Chi-Square where A is the set of discrete actions of AEX Index stock holders, F is the set of discrete states, P : S × F × S → R is the transition probability distribution, R : S × F → R is the reaction function, and γ ∈ [0, 1] is a move factor for expectation.^1,2,3,4

F(Chi-Square)^5,6,7= $\begin{array}{cccc}{p}_{\mathrm{a}1}& p_{\mathrm{a}2}& \dots & p_{1n}\\ & ⋮\\ p_{j1}& p_{j2}& \dots & p_{jn}\\ & ⋮\\ p_{k1}& p_{k2}& \dots & p_{kn}\\ & ⋮\\ p_{n1}& p_{n2}& \dots & p_{nn}\end{array}$ X R(Modular Neural Network (Market News Sentiment Analysis)) X S(n):→ (n+1 year) $\overrightarrow{R}=\left(r_1,r_2,r_3\right)$

n:Time series to forecast

p:Price signals of AEX Index stock

j:Nash equilibria

k:Dominated move

a:Best response for target price

 

For further technical information as per how our model work we invite you to visit the article below: 

How do AC Investment Research machine learning (predictive) algorithms actually work?

AEX Index Stock Forecast (Buy or Sell) for (n+1 year)

Sample Set: Neural Network
Stock/Index: AEX Index AEX Index
Time series to forecast n: 31 Oct 2022 for (n+1 year)

According to price forecasts for (n+1 year) period: The dominant strategy among neural network is to Sell AEX Index stock.

X axis: *Likelihood% (The higher the percentage value, the more likely the event will occur.)

Y axis: *Potential Impact% (The higher the percentage value, the more likely the price will deviate.)

Z axis (Yellow to Green): *Technical Analysis%

Adjusted IFRS* Prediction Methods for AEX Index

1. Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss. However, the entity may transfer the cumulative gain or loss within equity.
2. The definition of a derivative in this Standard includes contracts that are settled gross by delivery of the underlying item (eg a forward contract to purchase a fixed rate debt instrument). An entity may have a contract to buy or sell a non-financial item that can be settled net in cash or another financial instrument or by exchanging financial instruments (eg a contract to buy or sell a commodity at a fixed price at a future date). Such a contract is within the scope of this Standard unless it was entered into and continues to be held for the purpose of delivery of a non-financial item in accordance with the entity's expected purchase, sale or usage requirements. However, this Standard applies to such contracts for an entity's expected purchase, sale or usage requirements if the entity makes a designation in accordance with paragraph 2.5 (see paragraphs 2.4–2.7).
3. An entity that first applies IFRS 17 as amended in June 2020 after it first applies this Standard shall apply paragraphs 7.2.39–7.2.42. The entity shall also apply the other transition requirements in this Standard necessary for applying these amendments. For that purpose, references to the date of initial application shall be read as referring to the beginning of the reporting period in which an entity first applies these amendments (date of initial application of these amendments).
4. Interest Rate Benchmark Reform—Phase 2, which amended IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, issued in August 2020, added paragraphs 5.4.5–5.4.9, 6.8.13, Section 6.9 and paragraphs 7.2.43–7.2.46. An entity shall apply these amendments for annual periods beginning on or after 1 January 2021. Earlier application is permitted. If an entity applies these amendments for an earlier period, it shall disclose that fact.

*International Financial Reporting Standards (IFRS) are a set of accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world.

Conclusions

AEX Index assigned short-term B2 & long-term B3 forecasted stock rating. We evaluate the prediction models Modular Neural Network (Market News Sentiment Analysis) with Chi-Square^1,2,3,4 and conclude that the AEX Index stock is predictable in the short/long term. According to price forecasts for (n+1 year) period: The dominant strategy among neural network is to Sell AEX Index stock.

Financial State Forecast for AEX Index AEX Index Stock Options & Futures

Rating	Short-Term	Long-Term Senior
Outlook*	B2	B3
Operational Risk	70	32
Market Risk	48	42
Technical Analysis	55	53
Fundamental Analysis	53	60
Risk Unsystematic	62	47

Prediction Confidence Score

Trust metric by Neural Network: 85 out of 100 with 690 signals.

References

1. J. Ott. A Markov decision model for a surveillance application and risk-sensitive Markov decision processes. PhD thesis, Karlsruhe Institute of Technology, 2010.
2. M. Colby, T. Duchow-Pressley, J. J. Chung, and K. Tumer. Local approximation of difference evaluation functions. In Proceedings of the Fifteenth International Joint Conference on Autonomous Agents and Multiagent Systems, Singapore, May 2016
3. Scott SL. 2010. A modern Bayesian look at the multi-armed bandit. Appl. Stoch. Models Bus. Ind. 26:639–58
4. Hastie T, Tibshirani R, Tibshirani RJ. 2017. Extended comparisons of best subset selection, forward stepwise selection, and the lasso. arXiv:1707.08692 [stat.ME]
5. Barkan O. 2016. Bayesian neural word embedding. arXiv:1603.06571 [math.ST]
6. Arjovsky M, Bottou L. 2017. Towards principled methods for training generative adversarial networks. arXiv:1701.04862 [stat.ML]
7. Candès E, Tao T. 2007. The Dantzig selector: statistical estimation when p is much larger than n. Ann. Stat. 35:2313–51

Frequently Asked Questions

Q: What is the prediction methodology for AEX Index stock?
A: AEX Index stock prediction methodology: We evaluate the prediction models Modular Neural Network (Market News Sentiment Analysis) and Chi-Square
Q: Is AEX Index stock a buy or sell?
A: The dominant strategy among neural network is to Sell AEX Index Stock.
Q: Is AEX Index stock a good investment?
A: The consensus rating for AEX Index is Sell and assigned short-term B2 & long-term B3 forecasted stock rating.
Q: What is the consensus rating of AEX Index stock?
A: The consensus rating for AEX Index is Sell.
Q: What is the prediction period for AEX Index stock?
A: The prediction period for AEX Index is (n+1 year)

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