Improving Candle Direction Classification in Forex Market Using Support Vector Machine with Hyperparameters Tuning

Abstract

Foreign Exchange market is the world's largest daily currency turnover. Two of the popular currencies Euro and Pound sterling traded against the US Dollar. Since the Russia and Ukraine war started in February 2022, their exchange rates decrease to the lowest rate ever. Even though the general trend is bearish, several daily candles increase for some days making challenges for forex analysts. To solve this problem, classification is applied. The data is labeled downward and upward. By utilizing Linear Kernel and Radial Basis Function (RBF) Kernel-based Support Vector Machines (SVM), the candle direction can be classified and optimized by tuning the Hyperparameters. The accuracy of candle direction classifications are highly improved. After tuning, in general, classification using Linear Models can outperform RBF Models. The best accuracy found on the Pound sterling against US Dollar by using the Linear model is 98.11% and the accuracy becomes 100% on data testing at a ratio of 70:30. Whilst for the Euro against the US Dollar, the best accuracy found the same for both Linear and RBF models on a ratio of 80:20 at 97.53%. However, on data testing, it decreases to 94.51% for Linear Model and 93.41% using RBF Model. The implication of this study is SVM can successfully classify candle direction on pairs in the Forex Market that are affected by a big event that comes for such a long period as long as the hyperparameter is tuned.