A Compensatory Fuzzy Logic Model in Technical Trading

Abstract

This work presents a novel approach to prediction of financial asset prices. Its main contribution is the combination of compensatory fuzzy logic and the classical technical analysis to build an efficient prediction model. The interpretability properties of the model allow its users to incorporate and consider virtually any set of rules from technical analysis, in addition to the investors’ knowledge related to the actual market conditions. This knowledge can be incorporated into the model in the form of subjective assessments made by investors. Such assessments can be obtained, for example, from the graphical analysis commonly performed by traders. The effectiveness of the model was assessed through its systematic application in the stock and cryptocurrency markets. From the results, we conclude that when the model shows a high degree of recommendation, the actual financial assets show high effectiveness.

Transdisciplinary Scientific Strategies for Soft Computing Development: Towards an Era of Data and Business Analytics

“…It is interpretable according to natural language using a new transdisciplinary concept that defines it as Interpretability or compatibility with the most important mathematical theories used to deal with social practices with natural language. It can deal with a wide spectrum of usual fuzzy logic problems, treated by different fuzzy approaches, and has been used in very different real applications case studies [9,10].…”

“…Specifically, they were created as alternatives to mathematical morphology and fuzzy morphology a new way called compensatory morphology, where the excellent robustness of CFL operators are used successfully, using new definitions of the basic morphology operators by CFL [109][110][111]. This is an interesting property because even when CFL is very sensitive because of the property of strict growing of its definition [9,10,112], compensatory axiom guarantees robustness because of the compensation of the small differences among different attributes [112]. That is the key to its success in treatment with the presence of measurement noise.…”

“…A new theoretical approach interpretable by bivalent logic called CFL and compatible with selected elements of decision-making theories and statistics was created [9,10,123].…”

“…Computational Tools for their use were created, and multiple applications were made in [9,10,[89][90][91][92][95][96][97][98][99][100][101][102][103][104][105][106][107][108][109][110][111][113][114][115][116][117][118][119][120][121][122]. A methodology for knowledge management and decision making in organizations was elaborated in [6][7][8].…”

“…New theoretical developments like compensatory fuzzy logic (CFL) and, more recently, Archimedean compensatory fuzzy logic (ACFL), are transdisciplinary theories with superb properties for interpretability with language [9][10][11][12]. A complete description of a three dimensions research program in course can be found in Appendix A.…”