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Multiresolution forecasting for futures trading using wavelet decompositions

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5 Author(s)
Zhang, B.-L. ; Lab. of Comput. Eng., Sydney Univ., NSW, Australia ; Coggins, R. ; Jabri, M.A. ; Dersch, D.
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We investigate the effectiveness of a financial time-series forecasting strategy which exploits the multiresolution property of the wavelet transform. A financial series is decomposed into an over complete, shift invariant scale-related representation. In transform space, each individual wavelet series is modeled by a separate multilayer perceptron (MLP). We apply the Bayesian method of automatic relevance determination to choose short past windows (short-term history) for the inputs to the MLPs at lower scales and long past windows (long-term history) at higher scales. To form the overall forecast, the individual forecasts are then recombined by the linear reconstruction property of the inverse transform with the chosen autocorrelation shell representation, or by another perceptron which learns the weight of each scale in the prediction of the original time series. The forecast results are then passed to a money management system to generate trades

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Neural Networks, IEEE Transactions on  (Volume:12 ,  Issue: 4 )