Deep Reinforcement Learning for Trading

Journal of Financial Data Science, Volume 2, Issue 2, 2019, https://jfds.pm-research.com/content/2/2/25

Posted: 10 Feb 2020

See all articles by Zihao Zhang

Zihao Zhang

University of Oxford - Oxford-Man Institute of Quantitative Finance

Stefan Zohren

University of Oxford - Oxford-Man Institute of Quantitative Finance

Stephen Roberts

University of Oxford - Oxford-Man Institute of Quantitative Finance

Date Written: November 22, 2019

Abstract

We adopt Deep Reinforcement Learning algorithms to design trading strategies for continuous futures contracts. Both discrete and continuous action spaces are considered and volatility scaling is incorporated to create reward functions which scale trade positions based on market volatility. We test our algorithms on the 50 most liquid futures contracts from 2011 to 2019, and investigate how performance varies across different asset classes including commodities, equity indices, fixed income and FX markets. We compare our algorithms against classical time series momentum strategies, and show that our method outperforms such baseline models, delivering positive profits despite heavy transaction costs. The experiments show that the proposed algorithms can follow large market trends without changing positions and can also scale down, or hold, through consolidation periods.

Keywords: Reinforcement Learning, Trading Strategies, Time-Series Momentum

JEL Classification: G1

Suggested Citation

Zhang, Zihao and Zohren, Stefan and Roberts, Stephen, Deep Reinforcement Learning for Trading (November 22, 2019). Journal of Financial Data Science, Volume 2, Issue 2, 2019, https://jfds.pm-research.com/content/2/2/25. Available at SSRN: https://ssrn.com/abstract=3519858

Zihao Zhang (Contact Author)

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Stefan Zohren

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Stephen Roberts

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

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