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A Genetic Programming Approach for EUR/USD Exchange Rate Forecasting and Trading

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  • Georgios Vasilakis
  • Konstantinos Theofilatos
  • Efstratios Georgopoulos
  • Andreas Karathanasopoulos
  • Spiros Likothanassis

Abstract

The purpose of this article is to present a novel genetic programming trading technique in the task of forecasting the next day returns when trading the EUR/USD exchange rate based on the exchange rates of historical data. Aiming at testing its effectiveness, we benchmark the forecasting performance of our genetic programming implementation with three traditional strategies (naive strategy, MACD, and a buy & hold strategy) plus a hybrid evolutionary artificial neural network approach. The proposed genetic programming technique was found to demonstrate the highest trading performance in terms of annualized return and information ratio when compared to all other strategies which have been used. When more elaborate trading techniques, such as leverage, were combined with the examined models, the genetic programming approach still presented the highest trading performance. To the best of our knowledge, this is the first time that genetic programming is applied in the problem of effectively modeling and trading with the EUR/USD exchange rate. Our application now offers practitioners with an effective and extremely promising set of results when forecasting in the foreign exchange market. The developed genetic programming environment is implemented using the C++ programming language and includes a variation of the genetic programming algorithm with tournament selection. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Georgios Vasilakis & Konstantinos Theofilatos & Efstratios Georgopoulos & Andreas Karathanasopoulos & Spiros Likothanassis, 2013. "A Genetic Programming Approach for EUR/USD Exchange Rate Forecasting and Trading," Computational Economics, Springer;Society for Computational Economics, vol. 42(4), pages 415-431, December.
    • Handle: RePEc:kap:compec:v:42:y:2013:i:4:p:415-431
    DOI: 10.1007/s10614-012-9345-8
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    References listed on IDEAS

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    1. Hannah Thinyane & Jonathan Millin, 2011. "Erratum to: An Investigation into the Use of Intelligent Systems for Currency Trading," Computational Economics, Springer;Society for Computational Economics, vol. 38(2), pages 205-205, August.
    2. Hannah Thinyane & Jonathan Millin, 2011. "An Investigation into the Use of Intelligent Systems for Currency Trading," Computational Economics, Springer;Society for Computational Economics, vol. 37(4), pages 363-374, April.
    3. Christian Dunis & Jason Laws & Georgios Sermpinis, 2010. "Modelling and trading the EUR/USD exchange rate at the ECB fixing," The European Journal of Finance, Taylor & Francis Journals, vol. 16(6), pages 541-560.
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    1. Sorić, Petar & Lolić, Ivana & Claveria, Oscar & Monte, Enric & Torra, Salvador, 2019. "Unemployment expectations: A socio-demographic analysis of the effect of news," Labour Economics, Elsevier, vol. 60(C), pages 64-74.
    2. Alina Barbulescu & Cristian Stefan Dumitriu, 2021. "Artificial Intelligence Models for Financial Time Series," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 685-690, August.
    3. Oscar Claveria & Enric Monte & Salvador Torra, 2018. "Tracking economic growth by evolving expectations via genetic programming: A two-step approach," Working Papers XREAP2018-4, Xarxa de Referència en Economia Aplicada (XREAP), revised Oct 2018.
    4. Monira Essa Aloud, 2020. "The role of attribute selection in Deep ANNs learning framework for high‐frequency financial trading," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 27(2), pages 43-54, April.
    5. Marcos Vizcaíno-González & Juan Pineiro-Chousa & Jorge Sáinz-González, 2017. "Selecting explanatory factors of voting decisions by means of fsQCA and ANN," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(5), pages 2049-2061, September.
    6. Oscar Claveria & Enric Monte & Salvador Torra, 2017. "A new approach for the quantification of qualitative measures of economic expectations," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(6), pages 2685-2706, November.
    7. Andreas Karathanasopoulos, 2016. "Modelling and trading the English stock market with novelty optimization techniques," Economics and Business Letters, Oviedo University Press, vol. 5(2), pages 50-57.
    8. Oscar Claveria & Enric Monte & Salvador Torra, 2017. "Let the data do the talking: Empirical modelling of survey-based expectations by means of genetic programming," IREA Working Papers 201711, University of Barcelona, Research Institute of Applied Economics, revised May 2017.
    9. Andreas Karathanasopoulos, 2017. "Modelling and trading the London, New York and Frankfurt stock exchanges with a new gene expression programming trader tool," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 24(1), pages 3-11, January.
    10. Alexandre Pimenta & Ciniro A. L. Nametala & Frederico G. Guimarães & Eduardo G. Carrano, 2018. "An Automated Investing Method for Stock Market Based on Multiobjective Genetic Programming," Computational Economics, Springer;Society for Computational Economics, vol. 52(1), pages 125-144, June.
    11. Konstandinos Chourmouziadis & Dimitra K. Chourmouziadou & Prodromos D. Chatzoglou, 2021. "Embedding Four Medium-Term Technical Indicators to an Intelligent Stock Trading Fuzzy System for Predicting: A Portfolio Management Approach," Computational Economics, Springer;Society for Computational Economics, vol. 57(4), pages 1183-1216, April.
    12. Lijun Wang & Haizhong An & Xiaohua Xia & Xiaojia Liu & Xiaoqi Sun & Xuan Huang, 2014. "Generating Moving Average Trading Rules on the Oil Futures Market with Genetic Algorithms," Mathematical Problems in Engineering, Hindawi, vol. 2014, pages 1-10, May.
    13. Oscar Claveria & Enric Monte & Salvador Torra, 2019. "Evolutionary Computation for Macroeconomic Forecasting," Computational Economics, Springer;Society for Computational Economics, vol. 53(2), pages 833-849, February.
    14. Oscar Claveria & Enric Monte & Salvador Torra, 2019. "Empirical modelling of survey-based expectations for the design of economic indicators in five European regions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(2), pages 205-227, May.
    15. Heng-Li Yang & Han-Chou Lin, 2017. "Applying the Hybrid Model of EMD, PSR, and ELM to Exchange Rates Forecasting," Computational Economics, Springer;Society for Computational Economics, vol. 49(1), pages 99-116, January.
    16. Leandro Maciel & Rosangela Ballini, 2021. "Functional Fuzzy Rule-Based Modeling for Interval-Valued Data: An Empirical Application for Exchange Rates Forecasting," Computational Economics, Springer;Society for Computational Economics, vol. 57(2), pages 743-771, February.

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