Talking about applied Artificial Intelligence? You probably heard about programs that can help you earn big money at stock markets, telling you what will prices be tomorrow, next week, or next month. I know, it sounds more like alchemy than like serious business, but software packages incorporating AI-related techniques are helping professional traders make profitable investment and trading decisions for years. Of course, AI doesn't hold answers to all your questions, but it can improve your investing. On the other hand, you know that various financial indicators can be quite confusing to the trader who is not used to them. Additionally, you don't know the first thing about neural networks, genetic algorithms and stuff. Should you simply disregard the whole notion of AI in investment business?
There are already several software packages combining traditional technical analysis with state-of-the-art AI technologies, including NeuroShell Trader from Ward Systems Group, Inc. and BioComp Profit from BioComp Systems, Inc. The process of technical analysis doesn't involve looking at income statements, balance sheets, or other fundamental information about the target company. Instead, it involves using past stock prices, volume, and other related data to forecast future price movements. One of the basic premises every technical analyst believes in is that stocks move in detectable trends rather than simple random variations. Your profit will skyrocket if these trends repeat themselves often enough and you can detect them in the early stages. Sounds like a great job for neural networks and similar technologies, isn't it? Actually, they have recently become a very popular technology for technical analysis. However, neural network goes far beyond a typical indicator, because it has the ability to learn from the data itself.
Marketing material for a newcomer in this field, TradingSolutions from NeuroDimension, Inc., promises user-friendly package allowing you to perform complex financial forecasting without leaving you lost in the technology. My previous experience with similar packages targeted at the same audience was rather frightening - you had to be an expert in both neural networks and professional trading to produce useful results. However, after using TradingSolutions for a couple of weeks and talking with other users, I must admit that developers at NeuroDimension did an excellent job. It can be confusing and hard to grasp at first, but that's the price you'll have to pay for unleashing its full power later on. Excellent on-line help system with accompanying introductory demos and step-by-step tutorials was a real life saver in many situations, and I do recommend reading as much of it as you can.
One of the things I like the most is the strong neural technology working behind the scene. TradingSolutions comes with several general neural network models that you can use to develop predictions. These are broken into two basic types: static and dynamic neural networks. Static neural networks train and predict using only current input information, making them appropriate for classification problems where they treat each set of inputs as a separate case. These include multilayer perceptrons, modular networks, and Jordan/Elman networks. On the other hand, dynamic neural networks train and predict using current input information, as well as a memory of recent input values and other training values. This makes them better for modeling data that contains information over time, such as financial data. Dynamic neural networks include time-lag recurrent networks and recurrent networks.
By default, the program automatically selects an appropriate pre-configured model for the prediction being made. This will fit your needs if you don't want to explore capabilities and pitfalls of each architecture - not many traders will have the time and will to do so. But here you have the complete freedom to select a different model or modify the pre-configured model. TradingSolutions can be used in conjunction with NeuroDimension's flagship product, NeuroSolutions, to develop new models and functionality. Advanced users can even design new topologies and then use the Custom Solution Wizard to generate those designs as Dynamic Link Libraries (DLLs).
Complex trading strategies can be built using this package, limited only by users experience and capabilities. After importing and previewing your financial data in a familiar explorer-like tree interface, you will probably want to perform calculations and/or predictions based on that data. This is typically done by creating new values (new fields in the chart or spreadsheet) based on your data, such as calculations based on financial indicators or predictions using a neural network. Every time you create a prediction, it is automatically analyzed for effectiveness. Beginners will appreciate plain English analysis of the statistics, pointing out things to watch for when using your predictions. Advanced users will like the ability to pre-analyze data to detect correlation between different stocks and indicators, and combining the results of multiple fields into a single field using a committee field. Trading solution, besides being a name for the whole package, is another important and frequently used concept. It is a way to bundle your own working solutions into one "black box" that can be applied to new data series or exported so that it can be given to other users. This is especially useful when an entry/exit signal requires multiple complex predictions or processing steps to create.
My general opinion is that this package will guarantee very good results if enough time is spent to understand it. I will avoid direct comparisons to any specific competitor - every user will find unique abilities in each commercial product available today. A sentence from the book Technical Analysis from A to Z by Steven B. Achelis gives an excellent summary: "I caution you not to let the software lull you into believing markets are as logical and predictable as the computer you use to analyze them." However, products like TradingSolutions are indispensable in the arsenal of serious analyst, as "...technical analysis software has done more to level the playing field for the average investor than any other non-regulatory event".
This review would't be complete without mentioning ND's interactive book, "Neural and Adaptive Systems: Fundamentals Through Simulations", featuring over 200 interactive experiments in NeuroSolutions to elucidate the fundamentals of neural networks and adaptive systems. Another excellent educational resource related to this product is Daniel Ervi's neural101.com. This site has been set up to facilitate the exchange of ideas and insights towards trading securities, with the main focus on utilizing Artificial Neural Networks as standalone trading systems and incorporating ANN's into existing profitable trading systems.