Intelligent candlestick forecast system for financial time-series analysis using metaheuristics-optimized multi-output machine learning

Abstract

The effective prediction of stock market prices and trends is a critical topic in financial research for investors and stakeholders who wish to increase their return on investment. Motivated by highly unstable stock market targets and the continuous trading system that has been launched by Taiwan’s stock market, this work develops an intelligent candlestick forecast system (ICFS), which combines the advantages of three forecasting techniques — single-point, interval value, and trend forecasting. The ICFS is simple and intuitive, using a sliding-window metaheuristic-optimized multi-output least squares support vector regression hybrid model scheme to forecast simultaneously four types of price information that are represented on a candlestick chart. Three parameter-free metaheuristic algorithms, namely teaching-learning-based optimization (TLBO), symbiotic organisms search (SOS), and forensic-based investigation (FBI), are in turn used to optimize the hyperparameters of the multi-output least squares support vector regression (MLSSVR) model, to increase its accuracy and stability in predicting stock prices. Benchmark data from relevant studies are used to compare the forecast performances of previously developed and the three proposed hybrid models. Among all tested models, the FBI-MLSSVR greatly outperforms the others in forecasting Standard & Poor’s (S&P) and National Association of Securities Dealers Automated Quotations (NASDAQ) indexes, Taiwan’s exchange-traded funds, and major listed construction companies. A floating dollar-cost averaging strategy for maximizing returns while minimizing investment risks is proposed and compared with traditional dollar-cost averaging and the buy-and-hold strategy. The profitability of the predictions made using the proposed system is verified against actual stock market operations. The ICFS is packaged as a visualized expert system and independent application program for the convenience of users, who can intuitively run it and interpret its forecasts. Therefore, this study is highly practical by providing stakeholders with an easy-to-use and accurate predictive tool.