Neural Networks

Neural Networks
by Olivier Becquet

Learn how to trade by making use of Neural Networks

Recently there has been a lot of buzz around Neural Networks in the trading markets. Packed with extremely powerful computing ability and bandwidth neural networks have the potential to allow systems used in trading evolve and learn in real time. Let’s take a brief look at neural networks.

Definition of Neural Network

It is simply defined as a computation model that imitates the way the human brain functions by computing extremely large amounts of data entered into the network to predict the possible outcome.

In technical terms, neural networks used in trading are usually data analysis protocols containing a very large amount of processing modules all intertwined through estimated probabilities.

It can be used in machine learning and pattern recognition which is naturally adaptive. When used in the right way, neutral networks learn by examining the results from previous steps.

Application of neural networks in forex

Neural networks make use of several data sources to yield one output result, this approach is quite different from existing trading systems. Once you can quantify the data, it can be added to the input source that is used for predictions. These neural networks are used in a wide variety of market forecasting forex applications. The neural networks can be programmed to identify patterns, translate data and deduce relevant conclusions about future occurrence.

It is important to note that before predictions in the forex market can be made, the neural networks must be programmed to identify patterns that are identifiable between the input and the output, and fine-tune the actions of the trading system in the right manner. The only setback to making use of neural networks is that it requires a lot of time and effort to train and test the networks. However, the time and effort put into training is worth it.

The concept here is that when you give the system sample input and output data, the network uncovers the relationship between both sets of data. Subsequently, the network then compares its result to see how they relate to the predicted outcomes.

Like with other testing situations, a neural network should function by making use of two different data set; one for testing and another one for training. The weighting are then adjusted across various relationship until the correct result is calculated. This is how neural networks adjust its behavior to improve results.

The Advantage neural networks in forex

The main advantage of neural-network in forex is the continuous learning and improvement of their functionality a more data is provided. Neural networks have the capability of mixing together technical and functional data. They are able to discover patterns that are usually missed when using a traditional system of development and they use these patterns to make correct assumptions.

The more detailed the input data is, the more likely you are to get an enhanced output. The system is able to recognize relationships between inputs data provided it is given enough data to work with.

Another advantage of neural networks in forex is that they are able to make intelligent decisions without mixing emotions into it. This is very useful for human traders in very volatile trading environment. Notwithstanding, there is always the need for human oversight since the system isn’t capable of introduction emotional factors into input data.

The trading system improves upon the strategy it has learnt

There are several forex trading systems that in added elements of neural networks so as to be able to learn your trading ideas. The best A.I systems take it a notch higher by improving on your trading idea based on live results. This keeps the system learning and improving as time goes on.