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Applications of AI and Data

Mining in Trading
Data Mining
• Discovering meaningful patterns, trends and correlations in large
datasets
• Big data – volume velocity and variety
• Big Data is often multi-dimensional and requires visualization tools
such as Tableau

Traditional datasets Alternative datasets

Company
Historical Prices Ratios Individual data Business data Sensor data
Fundamentals

Transactions ,
social media, reviews satellite images, CCTVs,
corporate data,
and news, web search traffic cams,
governmental agency
trends geolocation
data
Natural Language Processing
& Sentiment Analysis
• Computer analyses text and audio to extract
valuable trading signals
• Decipher sentiments like positive/negative
reactions towards a stock, product or
company
• Advanced computer power and programming
algorithms are allowing traders to “quantify
the unquantifiable”
• iSentium:
– Uses NLP to analyze unstructured social media
content and create Daily Directional Indicators on
stocks and ETFs
• Accern:
– Derives trading analytics such as sentiment, impact
and reliability from news stories, blogs, SEC filings and
social media
• Descartes Labs:
– Produces geospatial analytics that are used to track
firms in agriculture, logistics and commodities trade.
Supervised Learning
• JP Morgan’s Quantitative Research Team uses Random
Trees
– Decision trees find the optimal rule to forecast an
outcome based on a sequence of simple decision steps.
– Random Forests average simple decision tree models.
This yields better and more reliable forecasts
Supervised Learning
• Societe Generale
Electronic Trading uses
Support Vector
Machines
• This method maps
observations into a
multi-dimensional space
and separated into
categories using a
maximum margin
classifier
Unsupervised Learning
• Principle component analysis
– Find the main drivers from many independent
variables
• K-means
– Classify data into subgroups
– Data in the same group are similar.
– Develop different models for different groups
Genetic Algorithms
• Evolutionary biology -
survival of the fittest
• Failing techniques are Initialization of zero
generation individuals
disabled while successful
ones are retained, adapted
and evolved to fit new
market behavior
Selection of individuals
• Aidyia , a Hong Kong based Testing of efficiency
and profitability
with greater predictive
ability
algorithmic trading firm
uses Genetic Algorithms to
identify patterns and price
movements 2nd generation created

• Sentient Investment through Crossings,


Mutations and
Reproductions
Management uses
evolutionary intelligence to
make trading decisions

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