A learning adaptive Bollinger band system

This paper introduces a novel forecasting algorithm that is a blend of micro and macro modelling perspectives when using Artificial Intelligence (AI) techniques. The micro component concerns the fine-tuning of technical indicators with population based optimization algorithms. This entails learning a set of parameters that optimize some economically desirable fitness function as to create a dynamic signal processor which adapts to changing market environments. The macro component concerns combining the heterogeneous set of signals produced from a population of optimized technical indicators. The combined signal is derived from a Learning Classifier System (LCS) framework that combines population based optimization and reinforcement learning (RL). This research is motivated by two factors, that of non-stationarity and cyclical profitability (as implied by the adaptive market hypothesis [10]). These two properties are not necessarily in contradiction but they do highlight the need for adaptation and creation of new models, while synchronously being able to consult others which were previously effective. The results demonstrate that the proposed system is effective at combining the signals into a coherent profitable trading system but that the performance of the system is bounded by the quality of the solutions in the population.