Event prediction within directional change framework using a CNN-LSTM model

Author:

Rostamian AhooraORCID,O’Hara John G.

Abstract

AbstractFinancial forecasting has always been an intriguing research area in the field of finance. The widely accepted approach to forecast financial data is to perform predictions using time series data. In time series analysis, sampling the financial data with a predefined frequency (e.g. hourly, daily) leads to an uneven and discontinued data flow. Directional Change is a newly proposed approach that replaces physical time within the financial data and establishes an event-driven framework. With the emergence of the machine and deep learning-based methods, researchers have utilised them in financial time series. These techniques have shown to outperform conventional approaches. This paper aims to employ the CNN-LSTM model to investigate its predictive competence within the Directional Change (DC) framework to predict DC event prices. To obtain this objective, we first create the tick bars/candles of the GBPUSD, EURUSD, USDCHF, and USDCAD tick prices from January to August 2019. Then, the DC-based summaries of the selected tick bar/candle for each currency pair will be generated and fed to the CNN-LSTM model. The CNN-LSTM network architecture incorporates the robustness of Convolutional Neural Network (CNN) in feature extraction and Long Short-Term Memory (LSTM) in predicting sequential data. The results suggest that the performance of the CNN-LSTM model improves significantly within the DC framework.

Publisher

Springer Science and Business Media LLC

Subject

Artificial Intelligence,Software

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