Developing Cryptocurrency Trading Strategy Based on Autoencoder-CNN-GANs Algorithms (2412.18202v5)

Abstract: This paper leverages machine learning algorithms to forecast and analyze financial time series. The process begins with a denoising autoencoder to filter out random noise fluctuations from the main contract price data. Then, one-dimensional convolution reduces the dimensionality of the filtered data and extracts key information. The filtered and dimensionality-reduced price data is fed into a GANs network, and its output serve as input of a fully connected network. Through cross-validation, a model is trained to capture features that precede large price fluctuations. The model predicts the likelihood and direction of significant price changes in real-time price sequences, placing trades at moments of high prediction accuracy. Empirical results demonstrate that using autoencoders and convolution to filter and denoise financial data, combined with GANs, achieves a certain level of predictive performance, validating the capabilities of machine learning algorithms to discover underlying patterns in financial sequences. Keywords - CNN;GANs; Cryptocurrency; Prediction.

• The paper proposes a hybrid Autoencoder-CNN-GANs model for cryptocurrency price prediction by combining data denoising, feature extraction, and temporal pattern modeling.
• The model achieved 61.2% prediction accuracy and demonstrated significant profitability in trading simulation, yielding a 120% return over the test period.
• This hybrid approach highlights the potential of integrating diverse machine learning techniques for volatile financial markets and is applicable to other asset classes.

Overview of "Developing Cryptocurrency Trading Strategy Based on Autoencoder-CNN-GANs Algorithms"

This paper introduces an innovative approach to cryptocurrency trading by developing a predictive model incorporating Autoencoders, Convolutional Neural Networks (CNNs), and Generative Adversarial Networks (GANs). Its primary focus is on enhancing the accuracy of price predictions for cryptocurrency markets, specifically targeting Bitcoin perpetual futures contract data. This hybrid model capitalizes on each component's distinctive strengths—Autoencoders are utilized for data denoising, CNNs for extracting critical features, and GANs for capturing temporal patterns.

Core Contributions

The paper provides a comprehensive framework for predicting significant price movement in highly volatile cryptocurrency markets. The sequence begins with the acquisition of BTC price data every 10 minutes over five years, followed by noise reduction using Autoencoders, feature extraction via CNNs, and temporal pattern modeling through GANs. The end product is a robust trading strategy poised to make profitable decisions based on anticipated market movements.

In predictive tasks, the proposed model reportedly achieved an accuracy of 61.2%, surpassing traditional statistical and machine learning methodologies like ARIMA, standalone LSTMs, and hybrid CNN-LSTM approaches. Furthermore, the trading effectiveness was illustrated by a substantial net value growth from 1 to approximately 1,370,000, a return of 120% over the testing period, with a maximum drawdown of only 15% and a Sharpe Ratio of 2.5.

Methodological Strengths

The paper's methodological framework exemplifies the strategic blending of different machine learning techniques suited for different stages of the analysis process. The authors' decision to utilize a denoising Autoencoder highlights the importance of preprocessing in improving model performance by cleansing the data of noise. The CNNs effectively identify and extract spatial and feature patterns, while GANs aptly simulate and utilize temporal dependencies, a crucial feature in financial time series where sequential data is pivotal.

The cross-validation of the model ensures generalizability across different data slices, and the tuning of hyperparameters optimizes the model setup. Utilizing a framework capable of real-time prediction affirms the paper's practical applications in live trading settings.

Empirical Results and Implications

Empirical results affirm the proposed hybrid model's superiority in both prediction and trading domains when benchmarked against conventional and advanced strategies. Beyond the intuitive integration of diverse machine learning layers, the results underscore the potential for sophisticated hybrid models to navigate and anticipate price changes amidst cryptocurrency market volatility.

The model showcases conducive implications for quantitative market participants and opens avenues for further research in volatility prediction, risk management, and enhanced algorithmic trading systems pivoted on complex learning models. Additionally, this research's versatile methodology may be applied beyond cryptocurrency to other asset classes, vastly extending its applicability in financial technology.

Future Research Directions

The paper acknowledges the scope for future work, such as integrating macroeconomic indicators, sentiment analyses, or real-time market depth data to enhance the model's robustness. Investigating alternative architectural models, such as transformers or attention mechanisms, could further elevate predictive capabilities and algorithmic efficiency. Implementing these strategies could amplify this work's foundation, paving the way for ongoing advancements in financial forecasting and trading systems.

In conclusion, this research presents a structured and technically sound approach to predicting and capitalizing on cryptocurrency market dynamics. It demonstrates the significant potential of deploying hybrid machine learning models for robust financial decision-making, with promising implications for the continuous evolution of quantitative trading methodologies.