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Generating Alpha: A Hybrid AI-Driven Trading System Integrating Technical Analysis, Machine Learning and Financial Sentiment for Regime-Adaptive Equity Strategies

Author

Listed:
  • Varun Narayan Kannan Pillai
  • Akshay Ajith
  • Sumesh K J

Abstract

The intricate behavior patterns of financial markets are influenced by fundamental, technical, and psychological factors. During times of high volatility and regime shifts causes many traditional strategies like trend-following or mean-reversion to fail. This paper proposes a hybrid AI-based trading strategy that combines (1) trend-following and directional momentum capture via EMA and MACD, (2) detection of price normalization through mean-reversion using RSI and Bollinger Bands, (3) market psychological interpretation through sentiment analysis using FinBERT, (4) signal generation through machine learning using XGBoost and (5)dynamically adjusting exposure with market regime filtering based on volatility and return environments. The system achieved a final portfolio value of $235,492.83, yielding a return of 135.49% on initial investment over a period of 24 months. The hybrid model outperformed major benchmark indexes like S&P 500 and NASDAQ-100 over the same period showing strong flexibility and lower downside risk with superior profits validating the use of multi-modal AI in algorithmic trading.

Suggested Citation

  • Varun Narayan Kannan Pillai & Akshay Ajith & Sumesh K J, 2026. "Generating Alpha: A Hybrid AI-Driven Trading System Integrating Technical Analysis, Machine Learning and Financial Sentiment for Regime-Adaptive Equity Strategies," Papers 2601.19504, arXiv.org.
    • Handle: RePEc:arx:papers:2601.19504
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    References listed on IDEAS

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