Abstract. We explore the possibility of using the genetic algorithm to optimize trading models based on the Hierarchical Temporal Memory (HTM) machine learning technology. Technical indicators, derived from intraday tick data for the E-mini S&P 500 futures market (ES), were used as feature vectors to the HTM models. All models were configured as binary classifiers, using a simple buy-and-hold trading strategy, and followed a supervised training scheme. The data set was partitioned into multiple folds to enable a modified cross validation scheme. Artificial Neural Networks (ANNs) were used to benchmark HTM performance. The results show that the genetic algorithm succeeded in finding predictive models with good performance and generalization ability. The HTM models outperformed the neural network models on the chosen data set and both technologies yielded profitable results with above average accuracy.
IntroductionOne recent machine learning technology that has shown good potential in algorithmic trading is Hierarchical Temporal Memory (HTM). It borrows concepts from neural networks, Bayesian networks and makes use of spatiotemporal clustering algorithms to handle noisy inputs and to create invariant representations of patterns discovered in its input stream. In a previous paper [3], an initial study was carried-out where the predictive performance of the HTM technology was investigated within algorithmic trading of financial markets. The study showed promising results, in which the HTMbased algorithm was profitable across bullish-, bearish and horizontal market trends, yielding comparable results to its neural network benchmark. Although, the previous work lacked any attempt to produce near optimal trading models. One popular group of optimization methods are evolutionary optimization methods. The simplest evolutionary optimization technique is the genetic algorithm. This paper extends the HTM-based trading algorithm, developed in the previous work, by employing the genetic algorithm as an optimization method. Once again, neural networks are used as the benchmark technology.