Chapter 6.  Trading Using Machine Learning

In the capital market, machine learning-based algorithmic trading is quite popular these days and many companies are putting a lot of effort into machine learning-based algorithms which are either proprietary or for clients. Machine learning algorithms are programmed in such a way that they learn continuously and change their behavior automatically. This helps to identify new patterns when they emerge in the market. Sometimes patterns in the capital market are so complex they cannot be captured by humans. Even if humans somehow managed to find one pattern, humans do not have the tendency to find it efficiently. Complexity in patterns forces people to look for alternative mechanisms which identify such complex patterns accurately and efficiently.

In the previous chapter, you got the feel of momentum, pairs-trading-based algorithmic trading, and portfolio construction. In this chapter, I will explain step by step a few supervised and unsupervised...