Neural Network Filter for Forex trading

Using neural networks to analyze financial data allows you to reveal implicit connections and predict the direction of price movements. But in our opinion the most effective use for the neural is network as a filter. A well-designed neural filter can increase any strategy. The most suitable network for the forex strategy filter is the multi- layer neural network (Back Propagation Neural Network). Feed Forward Back Propagation architecture was created at the beginning of the 1970s by several independent authors: Werbor, Parker, Rumelhart, Hinton and Williams. Now the Back Propagation paradigm is the most popular, effective and easiest learning model for complex multilayer networks. It is used across different types of applications and has generated the wide class of neural networks with different structures and training methods. A typical Back Propagation network has an input layer, an output layer and at least one hidden layer. Theoretically, there are no restrictions concerning the number of hidden layers, but in reality only one or two are used.

Neurons are organized in a level-by-level structure with a direct signal transmission. Each neuron of the network produces the total sum of its inputs, runs this value through a transfer function and delivers an output value. The network can model the function of practically all levels of complexity which is determined by the number of layers and neurons within the layers.

So an important aspect of network modeling is determining the number of intermediate layers and the number of neurons they contain. We have added a neural filter based on the Back Propagation Neural Network to our Forex Robot TFOT. We have also trained the Neural net using historical data from 2010 until 2011. We then tested the Forex Robot TFOT without neural net from 2010 until May 2012.

The total net profit was 45980 We conducted a back test for the same period with the Neural Net Filter. The Forex robot TFOT opens the order with lot size of 1 lot, if the signal from the forex robot is confirmed by the neural network signal. But if the signal from the forex robot is not confirmed by the neural network signal, the Forex robot TFOT opens order with lot size of 0.5.

The total net profit was 62217 It is possible to trade with smaller lot sizes or not to open orders when the signal from the forex robot is not confirmed by the neural network signal. It all depends upon your risk preferences. Any trader can easily learn the neural network using the different neural network parameters: Bars Count - number of bars for analysis Neurons Count - number of neurons for analysis Epoch Count - number of epochs for analysis Max Error - the maximum error We use the following parameters: Bars Count = 12 Neurons Count = 60 Epoch Count = 10000 Max Error = 0.05

These are our parameter choices but they may not be the best ones. Any trader can try to find the best parameters that will improve their results using forex robot TFOT. Good Luck!