Neural Network EMA system (NeuroTrend)

[aroonraj]

Hi Everyone,

After a lot of research, reading excellent basics at babypips and experimenting with various systems, I have finally implemented a forecasting system based on Neural Networks. Neural networks based systems are proven in financial forecasting and in general in learning patterns of a non-linear systems.

I believe strongly that forex market is a non-linear system which is difficult to model. But one good thing of forex market is that it represents some patterns which when known can be applied in making trading decisions. Proof of this concept is technical analysis and theories that are widely used by traders in identifying these patterns. This makes neural networks a better tool for forex market as neural networks are know their ability of learning unknown processes and forecast the patterns of the process ahead.

Lets get to the main point. In this thread I would describe the working of the system I have developed rather than the system itself as it is a long way to explain. The system is basically a time-series-forecasting system, which means we give as input information about current Bar and the system would give out information about Bars in future. I am sure now you are thinking if its really possible and if so what are the actual inputs and what are the actual outputs. I would strongly suggest the reader to go through the basics of neural networks before reading further.

An Introduction to Neural Networks forecasting


Note: The system is optimized and targeted to trade on EURUSD 15min chart

INPUTS

EMA(t) - EMA (t-1)

EMA(t-1) - EMA (t-2)

EMA(t-2) - EMA (t-3)

RSI(t)

RSI(t-1)

%R(t)

%R(t-1)

MACD(t)

MACD(t-1)

Stoch(t)

Stoch(t-1)

1H EMA(t)

1H EMA(t-1)

OUTPUTS

EMA(t) - EMA(t+1)

EMA(t+1) - EMA(t+2)

EMA(t+2) - EMA(t+3)

where t means current time or Bar. As you see, we give the difference of the past three EMA of the 15min chart Bars, past two indicator values of RSI, %R, MACD, Stochastic and past two EMA difference of 1H chart Bars. The system will be able to forecast and output the future 3 EMA difference of 15min chart Bars. How is this able to forecast is hard to explain (may be I will start a second thread), but for now you should consider the system is able to do so as it has been trained on several past data (3-6 months). The system for now consists of an indicator and an include file (both attached at the end). I would be showing some examples how it can be used to detect the patterns of forex market and make trading decisions.



Dashed Aqua blue line (bottom most): EMA 5 bar

Yellow line: Forecasted EMA(t+1) / output 1 of neural network

Green Yellow line: Forecasted EMA(t+2) / output 2 of neural network

Gold line (top most): Forecasted EMA(t+3) / output 3 of neural network

In the figure above it is clear from the forecast lines that the trend is going to be Bullish eventhough the current EMA shows Bearish trend. This is a kind of lead indicator.

BUY SIGNAL

1) All three forecasts significantly above current EMA

2) RSI trending up from below 50 level and about or crossed 50 upwards

3) Stochastic Main > Signal and trending up from over sold region

4) Optional: MACD going negative to positive

Example



SELL SIGNAL

1) All three forecasts significantly below current EMA

2) RSI trending down from above50 level and about or crossed 50 downwards

3) Stochastic Main < Signal and trending down from overbought region

4) Optional: MACD going positive to negative

Example



Installation:

Please read the Instructions.txt file in the zip file attached below. A step by step procedure to install the NeuroTrend is documented in the file. If you find difficulty in installation do not hesitate to ask me......

Finally I would like to say that have fun with the system and if you like it do comment. If you have ideas or suggestions to apply it or adapt it, share it in this thread. My main aim in making it open to this forum is to get experts suggestions and improve it and learn from the experience of its applications.....of course also earn a couple of bucks hehehehe

Note: Due to file attachment limitation, the actual files are zipped to NeuroTrendv1.0

Cheers!
Aroon

[bnbb2004]

Pretty cool system...What is your exit strategy?

[aroonraj]

Originally Posted by bnbb2004

Pretty cool system...What is your exit strategy?

Hi,

Exit strategy for long is when the dashed EMA5 line moving up and crossing the forecast signals or all the signals come together with no significant difference. For short its the opposite ie.. the dashed EMA5 line moving down and crossing the forecast signals or all the signals come together with no significant difference.

Stop loss: For long, recent swing low or 20pips below. For short, recent swing high or 20pips above.

Best Wishes,
Arun

[nabil114]

how well does your system work?

[aroonraj]

Originally Posted by nabil114

how well does your system work?

I cannot give quantitative results as I did not trade live with the system. I am currently testing it with a demo and live account. I would publish as soon as I have significant results. I am seeking also interested people to join me and
give valuable feedback to optimize the system.

I would suggest interested people to load the forecasting system and see how it is able to forecast the future signals. In my opinion this is a kind of lead indicator every trader is looking for.

I have been doing a lot research to program a forecasting system based on neural networks and tried various methods. The final best output of my effort is NeuroTrend. I am open to explain in detail how neural networks work, architecture of the system, and how to train such systems in return to suggestions, testing results and valuable feedback.

Thanks,
Aroon

[nabil114]

i think demarker indicator is better version of the rsi. maybe you can also need think about sideways market and how your system would predict that!!! if small sideways movement.

[4xStar]

Hi .. I saved the template and indicators to the correct folders (I've had a lot of experience installing indicators and templates) but when I load the template, the indicators are not listed on it and also the Neuro Trend Indicator is not in the indicators list even though it is in the indicators folder.

Any suggestions?

[aroonraj]

Originally Posted by 4xStar

Hi .. I saved the template and indicators to the correct folders (I've had a lot of experience installing indicators and templates) but when I load the template, the indicators are not listed on it and also the Neuro Trend Indicator is not in the indicators list even though it is in the indicators folder.

Any suggestions?

The reason for not loading properly would be not able to find the ex4 file in the folder. You need to open the NeuroTrend_indicator.mq4 in editor and compile once so that the ex4 (executable) is created and then load the template. I think restarting the terminal should do this automatically.


If it does'nt help tell me I would recheck it on my system and send the ex4 files if needed.

Best Wishes,
Aroon

[aroonraj]

Originally Posted by nabil114

i think demarker indicator is better version of the rsi. maybe you can also need think about sideways market and how your system would predict that!!! if small sideways movement.

Thanks for the suggestion, I can test it by adding also Demarker indicator as one of the inputs. My intention to use RSI was only as a trend confirmation tool. I should also read about Demarker. I have never used it.

Concerning sideways, the indicator is right now able to be quite when the market is moving side ways (absolute). Any better suggestions (indicators) to improve the side way pattern detection?

Also neural networks are capable of learning any pattern that has to be detected unless and until the model is define well and the inputs given have this information. In my experience with various indicator inputs, I found the currently included indicator inputs work better.

In future I plan to make a table of indicator inputs and their combinations and a comparison of the outputs according to the inputs.

Best Wishes,
Arun

[aroonraj]

I have updated the indicator and template. Following are the new changes.

1) Email and Alert notification on setup

2) Small chages to the colors of the levels

Download the new version from the attachments