Trading Strategy for Market Situation Estimation Based on Hidden Markov Model

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ID: 260731
2020
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Abstract
Determining states of the market and scientific laws of transfer between these states is an important subject in the field of financial mathematics. According to the results of market situation estimation, formulating corresponding trading strategies can gain profits in the market through machine trading. The market situation is mainly divided into three types: bull market, mixed market and bear market, and it can be further subdivided into multiple types. Using the hidden Markov model (HMM) to estimate the market situation is not restricted by linear conditions compared to the traditional use of linear models. In this paper, we first use HMM to model the market situation, perform feature analysis on the hidden state of the model input, and then estimate the three market situations, and propose the Markov situation estimation trading strategy. On this basis, we have made a more fine-grained division of the market situation and increased the number of hidden sequences in the model. Experiments verify that this method can improve the profitability of the strategy.
Reference Key
chen2020mathematicstrading Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Peng Chen;Dongyun Yi;Chengli Zhao;Chen, Peng;Yi, Dongyun;Zhao, Chengli;
Journal Mathematics
Year 2020
DOI
10.3390/math8071126
URL
https://www.mdpi.com/2227-7390/8/7/1126/htm
Keywords
hidden markov model market situation situation estimation trading strategy

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