Machine learning with Belief Rule-Based Expert Systems to predict stock price movements

Abstract

Price prediction of financial assets has been a key interest for researchers over the decades. Numerous techniques to predict the price movements have been developed by the researchers over the years. But a model loses its credibility once a large number of traders start using the same technique. Therefore, the traders are in continuous search of new and efficient prediction techniques. In this research, we propose a novel machine learning technique using technical analysis with Belief Rule-Based Expert System (BRBES), and incorporating the concept of Bollinger Band to forecast stock price in the next five days. A Bollinger Event is triggered when the closing price of the stock goes down the Lower Bollinger Band. The BRBES approach has never been applied to stock markets, despite its potential and the appetite of the financial markets for expert systems. We predict the price movement of the Swedish company TELIA as a proof of concept. The knowledge base of the initial BRBES is constructed by simulating the historical data and then the learning parameters are optimized using MATLAB’s fmincon function. We evaluate the performance of the trained BRBES in terms of Accuracy, Area Under ROC Curve, Root Mean Squared Error, type I error, type II error, R2 value, and profit/loss ratio. We compare our proposed model against a similar rule-based technique, Adaptive Neuro-Fuzzy Inference System (ANFIS), to understand the significance of the improved rule base of BRBES. We also compare the performance against Support Vector Machine (SVM), one of the most popular machine learning techniques, and a simple heuristic model. Finally, the trained BRBES is compared against recent state-of-the-art deep learning approaches to show how competitive the performance of our proposed model is. The results show that the trained BRBES produces better performance than the non-trained BRBES, ANFIS, SVM, and the heuristic approaches. Also, it indicates better or competitive performance against the deep learning approaches. Thus BRBES exhibits its potential in predicting financial asset price movement.