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Stop-loss adjusted labels for machine learning-based trading of risky assets

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  • Hwang, Yoontae
  • Park, Junpyo
  • Lee, Yongjae
  • Lim, Dong-Young

Abstract

Since the rise of ML/AI, many researchers and practitioners have been trying to predict future stock price movements. In actual implementations, however, stop-loss is widely adopted to manage risks, which sells an asset if its price goes below a predetermined level. Hence, some buy signals from prediction models could be wasted if stop-loss is triggered. In this study, we propose a stop-loss adjusted labeling scheme to reduce the discrepancy between prediction and decision making. It can be easily incorporated to any ML/AI prediction models. Experimental results on U.S. futures and cryptocurrencies show that this simple tweak significantly reduces risk.

Suggested Citation

  • Hwang, Yoontae & Park, Junpyo & Lee, Yongjae & Lim, Dong-Young, 2023. "Stop-loss adjusted labels for machine learning-based trading of risky assets," Finance Research Letters, Elsevier, vol. 58(PA).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323006578
    DOI: 10.1016/j.frl.2023.104285
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    References listed on IDEAS

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