Modern techniques like artificial neural networks (ANN) are best used for high frequency trading for several reasons. First, they mimic human intelligence but they mostly don’t reach a human’s level of intelligence, therefore, there is no point in using those techniques on a time scale at which a human could easily be working. Their advantage comes from speed of operation and constant activity. Second, we need a lot of data to train neural networks efficiently and this amount of data will only be found in high frequency trading. Forex has all in all quite few instruments with limited relevant past data on the daily or weekly time-scale. Furthermore, High frequency trading is a type of scalping strategy where we identify noise around the true value of the instrument. This is different from long-term trading that attempts to follow meaningful movements of the instrument according to fundamental analysis.Artificial Neural networks A good time-scale to work on is the minute time-scale. This time-scale is full of noise which will be captured by the algorithm in order to sell at a local high and buy at a local low. This can be proven using a simple neural network trained to predict the f…
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