Neural Networks Learn Forex Trading Strategies

Forex Trading Strategies:  The latest craze in the world of Forex are neural networks, a term borrowed from the field of artificial intelligence. In technical terms, neural networks are data analysis methods that are composed of a large number of processing units that are linked together by the weighted probabilities. In simpler terms, neural networks are a model somewhat similar to the way the human brain works and learns. For decades, the people of the artificial intelligence community has used neural network model in creating computers that “think” and “learn” dependent on a basis of the results of their actions.

Unlike traditional data structure, neural networks include multiple data flows and emit a result. If there is a way to quantify the data, then there is a way to add this data to the factors that are considered to make a prediction. They are often used in Forex prediction software because the network can be trained to interpret data and draw conclusions from it.

Before they can be of some use to make predictions in Forex, neural networks have to be “trained” to recognize and adjust the connections arising between input and output. The preparation and testing can be time consuming, but it is what gives neural networks their ability to predict future results basing on past data. The basic idea is that when presented with examples of pairs of data input and output, the network can “learn” the dependencies, and apply those dependencies when presented with new data. From there, the network can compare their own output with the correct prediction, and go back and adjust the various units until it reaches the correct answer.

This requires that the network was formed with two separate sets of data – training and testing. One advantage of neural networks is that it can continue learning by comparing their own predictions with data continuously added thereto. Neural networks are also very good to combine technical and fundamental data, which makes a better scenario for both. His same power allows you to find patterns that might not have been considered, and use these models in their predictions to reach amazingly accurate results.

Unfortunately, its strength can also be a weakness in the use of neural networks for trading predictions. Lately, the output data are just as good as the input. They are very good in the correlation of data even when they get huge amounts of them. They are very good at extracting patterns of very disparate information – even when there are not some patterns or relationships. His other big advantage – the ability to apply intelligence without emotion – after all, computers do not have ego – can also become a weakness when it comes to a volatile market. When an unknown factor is introduced, the artificial neural network can not assign some emotional weight to that factor.

There are currently dozens of Forex trading platforms on the market that incorporate theory and neural network technology to “teach” your system and let it make predictions and generate purchase orders / sell based on it. Keep in mind that the most basic rule of Forex trading is applied to start to build your neural network – educate yourself and know what you’re doing. Being with technical analysis, fundamentals, neural networks or their own emotions, the most important thing you can do to ensure your success in Forex trading is to learn all you can.