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Designing Stock Market Trading Systems: With and without soft computing by Tobias Hahn, Bruce Vanstone

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Chapter 6 – Creating Artificial Neural Networks

“You don’t need a weatherman to know which way the wind blows.”

Bob Dylan

6.1 Introduction

All trading systems have some behaviour which we would like to modify. Finding variables to help us influence this behaviour, however, is often very difficult.

Consider the case of a simple moving average crossover system. Such a system will invariably be subject to whipsaw. This is where a signal occurs, but is quickly reversed, maybe even in the next time period. This causes the system to move in and out of trades, tying up capital, and incurring transaction costs. The typical trader’s solution is to implement some crossover threshold which must be exceeded before the trade is taken, but this ...

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