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A Dynamic Fuzzy Money Management Approach for Controlling the Intraday Risk‐Adjusted Performance of AI Trading Algorithms

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  • Vince Vella
  • Wing Lon Ng

Abstract

The majority of existing artificial intelligence (AI) studies in computational finance literature are devoted solely to predicting market movements. In this paper we shift the attention to how AI can be applied to control risk‐based money management decisions. We propose an innovative fuzzy logic approach which identifies and categorizes technical rules performance across different regions in the trend and volatility space. The model dynamically prioritizes higher performing regions at an intraday level and adapts money management policies with the objective to maximize global risk‐adjusted performance. By adopting a hybrid method in conjunction with a popular neural network (NN) trend prediction model, our results show significant performance improvements compared with both standard NN and buy‐and‐hold approaches. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Vince Vella & Wing Lon Ng, 2015. "A Dynamic Fuzzy Money Management Approach for Controlling the Intraday Risk‐Adjusted Performance of AI Trading Algorithms," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 22(2), pages 153-178, April.
    • Handle: RePEc:wly:isacfm:v:22:y:2015:i:2:p:153-178
    DOI: 10.1002/isaf.1359
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