A neural network with a case based dynamic window for stock trading prediction

Stock forecasting involves complex interactions between market-influencing factors and unknown random processes. In this study, an integrated system, CBDWNN by combining dynamic time windows, case based reasoning (CBR), and neural network for stock trading prediction is developed and it includes three different stages: (1) screening out potential stocks and the important influential factors; (2) using back propagation network (BPN) to predict the buy/sell points (wave peak and wave trough) of stock price and (3) adopting case based dynamic window (CBDW) to further improve the forecasting results from BPN. The system developed in this research is a first attempt in the literature to predict the sell/buy decision points instead of stock price itself. The empirical results show that the CBDW can assist the BPN to reduce the false alarm of buying or selling decisions. Nine different stocks with different trends, i.e., upward, downward and steady, are studied and one individual stock (AUO) will be studied as case example. The rates of return for upward, steady, and downward trend stocks are higher than 93.57%, 37.75%, and 46.62%, respectively. These results are all very promising and better than using CBR or BPN alone.

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