Deep reinforcement learning stock market trading, utilizing a CNN with candlestick images

• Published in: PloS one Vol. 17; no. 2; p. e0263181
• Main Authors: Brim, Andrew, Flann, Nicholas S.
• Format: Journal Article
• Language: English
• Published: United States Public Library of Science 18.02.2022; Public Library of Science (PLoS)
• Subjects: Algorithms; Analysis; Approximation; Artificial intelligence; Artificial neural networks; Biology and Life Sciences; Candles; Computer and Information Sciences; Computer science; Coronaviruses; Datasets; Deep Learning; Feature maps; Forecasting - methods; Investments; Machine learning; Management; Medicine and health sciences; Neural networks; Research and Analysis Methods; Securities markets; Social Sciences; Stock exchanges; Stock market crashes; Stock markets; Tariffs; Visualization; United States; United States > US; China; Utah
• ISSN: 1932-6203; 1932-6203
• DOI: 10.1371/journal.pone.0263181

Billions of dollars are traded automatically in the stock market every day, including algorithms that use neural networks, but there are still questions regarding how neural networks trade. The black box nature of a neural network gives pause to entrusting it with valuable trading funds. A more recent technique for the study of neural networks, feature map visualizations, yields insight into how a neural network generates an output. Utilizing a Convolutional Neural Network (CNN) with candlestick images as input and feature map visualizations gives a unique opportunity to determine what in the input images is causing the neural network to output a certain action. In this study, a CNN is utilized within a Double Deep Q-Network (DDQN) to outperform the S&P 500 Index returns, and also analyze how the system trades. The DDQN is trained and tested on the 30 largest stocks in the S&P 500. Following training the CNN is used to generate feature map visualizations to determine where the neural network is placing its attention on the candlestick images. Results show that the DDQN is able to yield higher returns than the S&P 500 Index between January 2, 2020 and June 30, 2020. Results also show that the CNN is able to switch its attention from all the candles in a candlestick image to the more recent candles in the image, based on an event such as the coronavirus stock market crash of 2020.