Book Image

Hands-On Machine Learning for Algorithmic Trading

By : Stefan Jansen
Book Image

Hands-On Machine Learning for Algorithmic Trading

By: Stefan Jansen

Overview of this book

The explosive growth of digital data has boosted the demand for expertise in trading strategies that use machine learning (ML). This book enables you to use a broad range of supervised and unsupervised algorithms to extract signals from a wide variety of data sources and create powerful investment strategies. This book shows how to access market, fundamental, and alternative data via API or web scraping and offers a framework to evaluate alternative data. You’ll practice the ML work?ow from model design, loss metric definition, and parameter tuning to performance evaluation in a time series context. You will understand ML algorithms such as Bayesian and ensemble methods and manifold learning, and will know how to train and tune these models using pandas, statsmodels, sklearn, PyMC3, xgboost, lightgbm, and catboost. This book also teaches you how to extract features from text data using spaCy, classify news and assign sentiment scores, and to use gensim to model topics and learn word embeddings from financial reports. You will also build and evaluate neural networks, including RNNs and CNNs, using Keras and PyTorch to exploit unstructured data for sophisticated strategies. Finally, you will apply transfer learning to satellite images to predict economic activity and use reinforcement learning to build agents that learn to trade in the OpenAI Gym.
Table of Contents (23 chapters)

Decision Trees and Random Forests

In this chapter, we will learn about two new classes of machine learning (ML) models: decision trees and random forests. We will see how decision trees learn rules from data that encodes non-linear relationships between the input and the output variables. We will illustrate how to train a decision tree and use it for prediction for regression and classification problems, visualize and interpret the rules learned by the model, and tune the model's hyperparameters to optimize the bias-variance tradeoff and prevent overfitting. Decision trees are not only important standalone models but are also frequently used as components in other models.

In the second part of this chapter, we will introduce ensemble models that combine multiple individual models to produce a single aggregate prediction with lower prediction-error variance. We will illustrate...