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Sunday, February 11, 2018

Trading with Reinforcement Learning

Nice example of reinforcement learning.  Not really prediction of the kind might want, below just the introduction that sets the stage, click through to more detail that makes the case for usefulness of the method.   Also make the case of why financial prediction is difficult.   Application to crypto currency is interesting because of its general inscrutable nature.  See also paper on RL with Sparse rewards: https://arxiv.org/abs/1709.10089 

Introduction to Learning to Trade with Reinforcement Learning  By Denny Britz, in WildML

Thanks a lot to @aerinykim, @suzatweet and @hardmaru for the useful feedback!

The academic Deep Learning research community has largely stayed away from the financial markets. Maybe that’s because the finance industry has a bad reputation, the problem doesn’t seem interesting from a research perspective, or because data is difficult and expensive to obtain.

In this post, I’m going to argue that training Reinforcement Learning agents to trade in the financial (and cryptocurrency) markets can be an extremely interesting research problem. I believe that it has not received enough attention from the research community but has the potential to push the state-of-the art of many related fields. It is quite similar to training agents for multiplayer games such as DotA, and many of the same research problems carry over. Knowing virtually nothing about trading, I have spent the past few months working on a project in this field.

This is not a “price prediction using Deep Learning” post. So, if you’re looking for example code and models you may be disappointed. Instead, I want to talk on a more high level about why learning to trade using Machine Learning is difficult, what some of the challenges are, and where I think Reinforcement Learning fits in. If there’s enough interest in this area I may follow up with another post that includes concrete examples.

I expect most readers to have no background in trading, just like I didn’t, so I will start out with covering some of the basics. I’m by no means an expert, so please let me know in the comments so if you find mistakes. I will use cryptocurrencies as a running example in this post, but the same concepts apply to most of the financial markets. The reason to use cryptocurrencies is that data is free, public, and easily accessible. Anyone can sign up to trade. The barriers to trading in the financial markets are a little higher, and data can be expensive. And well, there’s more hype so it’s more fun :)  .... " 

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