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Optimization of High-Frequency Trading Strategies Using Deep Reinforcement Learning

Author

Listed:
  • Guanghe Cao
  • Yitian Zhang
  • Qi Lou
  • Gaike Wang

Abstract

This study presents a new method for optimising high-risk trading (HFT) strategies using deep learning (DRL). We propose a multi-time DRL framework integrating advanced neural network architectures with sophisticated business data processing techniques. The framework employs a combination of convolutional neural networks for manual order analysis, short-term memory networks for time series processing, and a multi-head listening mechanism for body fusion. We formulate the HFT problem based on Markov Decision Processes and use the Proximal Policy Optimization algorithm for training. The model is evaluated using tick-by-tick data from the NASDAQ exchange, including ten liquid stocks in 6 months. The experimental results show the superiority of our method, achieving a Sharpe ratio of 3.42, outperforming the learning model and machine learning based on benchmarks up to 33%. The proposed strategy has demonstrated strong performance across a wide range of regulatory markets and has shown potential for strategic objectives. Sensitivity analysis confirms the model's stability across a range of hyperparameters. Our findings suggest that the DRL-based approach can improve HFT performance and provide better market adaptation and risk management. This research leads to the continuous evolution of algorithmic trading strategies and shows the potential of AI-driven approaches in financial markets.

Suggested Citation

  • Guanghe Cao & Yitian Zhang & Qi Lou & Gaike Wang, 2024. "Optimization of High-Frequency Trading Strategies Using Deep Reinforcement Learning," Journal of Artificial Intelligence General science (JAIGS) ISSN:3006-4023, Open Knowledge, vol. 6(1), pages 230-257.
  • Handle: RePEc:das:njaigs:v:6:y:2024:i:1:p:230-257:id:247
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    Cited by:

    1. Haodong Zhang & Yanli Pu & Shuaiqi Zheng & Lin Li, 2024. "AI-Driven M&A Target Selection and Synergy Prediction: A Machine Learning-Based Approach," Journal of Artificial Intelligence General science (JAIGS) ISSN:3006-4023, Open Knowledge, vol. 6(1), pages 359-377.
    2. Meizhizi Jin & Zhongwen Zhou & Maoxi Li & Tianyu Lu, 2024. "A Deep Learning-based Predictive Analytics Model for Remote Patient Monitoring and Early Intervention in Diabetes Care," Journal of Artificial Intelligence General science (JAIGS) ISSN:3006-4023, Open Knowledge, vol. 6(1), pages 479-491.

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