Event prediction within directional change framework using a CNN-LSTM model

Financial forecasting has always been an intriguing research area in the field of finance. The widely accepted approach to forecast financial data is to perform predictions using time series data. In time series analysis, sampling the financial data with a predefined frequency (e.g. hourly, daily) leads to an uneven and discontinued data flow. Directional Change is a newly proposed approach that replaces physical time within the financial data and establishes an event-driven framework. With the emergence of the machine and deep learning-based methods, researchers have utilised them in financial time series. These techniques have shown to outperform conventional approaches. This paper aims to employ the CNN-LSTM model to investigate its predictive competence within the Directional Change (DC) framework to predict DC event prices. To obtain this objective, we first create the tick bars/candles of the GBPUSD, EURUSD, USDCHF, and USDCAD tick prices from January to August 2019. Then, the DC-based summaries of the selected tick bar/candle for each currency pair will be generated and fed to the CNN-LSTM model. The CNN-LSTM network architecture incorporates the robustness of Convolutional Neural Network (CNN) in feature extraction and Long Short-Term Memory (LSTM) in predicting sequential data. The results suggest that the performance of the CNN-LSTM model improves significantly within the DC framework.

An efficient isomorphic CNN-based prediction and decision framework for financial time series

Financial time series prediction and trading decision-making are priorities of computational intelligence for researchers in academia and the finance industry due to their broad application areas and substantial impact. However, these methods remain challenging because they retain various complex statistical properties, and the mechanism behind the processes is unknown to a large extent. A significant number of machine learning-based methods are proposed and demonstrate impressive results, especially deep learning-based models. Nevertheless, due to the high complexity of massive, nonlinear, and nonindependent data and the difficulties and time consumption of complicated training models of deep learning, the performance of online trading decisions is still inadequate for practical application. This paper proposes the Integrated Framework of Forecasting Based Online Trading Strategy (IFF-BOTS) to satisfy better prediction performance and dynamic decisions for real-world online trading systems. Our method adopts a novel isomorphic convolutional neural network (CNN)-based forecaster-classifier-executor architecture to exploit CNN-based price and trend integrated prediction and direct-reinforcement-learning-based trading decision-making. IFF-BOTS can also achieve better real-time performance for online trading. We empirically compare the proposed approach with state-of-the-art prediction and trading methods on real-world S&P and DJI datasets. The results show that the IFF-BOTS outperforms its competitors in predicting metrics, trading profits, and real-time performance.

Online Stock Price Prediction Based on Interval Data Analysis

The continuous increase in per capita income makes more residents choose stocks as a new investment method, so how to more accurately judge their price trends has become increasingly important. In most traditional time series analyses, models are built on basis of closing price, from the perspective of probability. This paper introduces the interval data into the stock price prediction task and proposes an attention mechanism-based long short-term memory (LSTM) model. Specifically, borrowing the idea from the sequence-to-sequence (seq2seq) model, the LSTM is first used as an encoder to encode the input sequence. Then the attention mechanism is used to capture the most useful information for the current output based on the encoded features. Finally, another LSTM model is used as a decoder to decode the encoded data features and obtain the prediction results. Experimental results show that the proposed model significantly improves the prediction accuracy.

LSTM-DDPG for Trading with Variable Positions

In recent years, machine learning for trading has been widely studied. The direction and size of position should be determined in trading decisions based on market conditions. However, there is no research so far that considers variable position sizes in models developed for trading purposes. In this paper, we propose a deep reinforcement learning model named LSTM-DDPG to make trading decisions with variable positions. Specifically, we consider the trading process as a Partially Observable Markov Decision Process, in which the long short-term memory (LSTM) network is used to extract market state features and the deep deterministic policy gradient (DDPG) framework is used to make trading decisions concerning the direction and variable size of position. We test the LSTM-DDPG model on IF300 (index futures of China stock market) data and the results show that LSTM-DDPG with variable positions performs better in terms of return and risk than models with fixed or few-level positions. In addition, the investment potential of the model can be better tapped by the reward function of the differential Sharpe ratio than that of profit reward function.

Factor-Based Framework for Multivariate and Multi-step-ahead Forecasting of Large Scale Time Series

State-of-the-art multivariate forecasting methods are restricted to low dimensional tasks, linear dependencies and short horizons. The technological advances (notably the Big data revolution) are instead shifting the focus to problems characterized by a large number of variables, non-linear dependencies and long forecasting horizons. In the last few years, the majority of the best performing techniques for multivariate forecasting have been based on deep-learning models. However, such models are characterized by high requirements in terms of data availability and computational resources and suffer from a lack of interpretability. To cope with the limitations of these methods, we propose an extension to the DFML framework, a hybrid forecasting technique inspired by the Dynamic Factor Model (DFM) approach, a successful forecasting methodology in econometrics. This extension improves the capabilities of the DFM approach, by implementing and assessing both linear and non-linear factor estimation techniques as well as model-driven and data-driven factor forecasting techniques. We assess several method integrations within the DFML, and we show that the proposed technique provides competitive results both in terms of forecasting accuracy and computational efficiency on multiple very large-scale (>10² variables and > 10³ samples) real forecasting tasks.

Predicting Stock Movements: Using Multiresolution Wavelet Reconstruction and Deep Learning in Neural Networks

Stock movement prediction is important in the financial world because investors want to observe trends in stock prices before making investment decisions. However, given the non-linear non-stationary financial time series characteristics of stock prices, this remains an extremely challenging task. A wavelet is a mathematical function used to divide a given function or continuous-time signal into different scale components. Wavelet analysis has good time-frequency local characteristics and good zooming capability for non-stationary random signals. However, the application of the wavelet theory is generally limited to a small scale. The neural networks method is a powerful tool to deal with large-scale problems. Therefore, the combination of neural networks and wavelet analysis becomes more applicable for stock behavior prediction. To rebuild the signals in multiple scales, and filter the measurement noise, a forecasting model based on a stock price time series was provided, employing multiresolution analysis (MRA). Then, the deep learning in the neural network method was used to train and test the empirical data. To explain the fundamental concepts, a conceptual analysis of similar algorithms was performed. The data set for the experiment was chosen to capture a wide range of stock movements from 1 January 2009 to 31 December 2017. Comparison analyses between the algorithms and industries were conducted to show that the method is stable and reliable. This study focused on medium-term stock predictions to predict future stock behavior over 11 days of horizons. Our test results showed a 75% hit rate, on average, for all industries, in terms of US stocks on FORTUNE Global 500. We confirmed the effectiveness of our model and method based on the findings of the empirical research. This study’s primary contribution is to demonstrate the reconstruction model of the stock time series and to perform recurrent neural networks using the deep learning method. Our findings fill an academic research gap, by demonstrating that deep learning can be used to predict stock movement.

AURORA: A Unified fRamework fOR Anomaly detection on multivariate time series

The ability to accurately and consistently discover anomalies in time series is important in many applications. Fields such as finance (fraud detection), information security (intrusion detection), healthcare, and others all benefit from anomaly detection. Intuitively, anomalies in time series are time points or sequences of time points that deviate from normal behavior characterized by periodic oscillations and long-term trends. For example, the typical activity on e-commerce websites exhibits weekly periodicity and grows steadily before holidays. Similarly, domestic usage of electricity exhibits daily and weekly oscillations combined with long-term season-dependent trends. How can we accurately detect anomalies in such domains while simultaneously learning a model for normal behavior? We propose a robust offline unsupervised framework for anomaly detection in seasonal multivariate time series, called AURORA. A key innovation in our framework is a general background behavior model that unifies periodicity and long-term trends. To this end, we leverage a Ramanujan periodic dictionary and a spline-based dictionary to capture both seasonal and trend patterns. We conduct experiments on both synthetic and real-world datasets and demonstrate the effectiveness of our method. AURORA has significant advantages over existing models for anomaly detection, including high accuracy (AUC of up to 0.98), interpretability of recovered normal behavior (\documentclass[12pt]{minimal} \usepackage{amsmath} \usepackage{wasysym} \usepackage{amsfonts} \usepackage{amssymb} \usepackage{amsbsy} \usepackage{mathrsfs} \usepackage{upgreek} \setlength{\oddsidemargin}{-69pt} \begin{document}$$100\%$$\end{document}100% accuracy in period detection), and the ability to detect both point and contextual anomalies. In addition, AURORA is orders of magnitude faster than baselines.

Forecasting stock price using integrated artificial neural network and metaheuristic algorithms compared to time series models

Today, stock market has important function and it can be a place as a measure of economic position. People can earn a lot of money and return by investing their money in the stock exchange market. But it is not easy because many factors should be considered. So, there are many ways to predict the movement of share price. The main goal of this article is to predict stock price indices using artificial neural network (ANN) and train it with some new metaheuristic algorithms such as social spider optimization (SSO) and bat algorithm (BA). We used some technical indicators as input variables. Then, we used genetic algorithms (GA) as a heuristic algorithm for feature selection and choosing the best and most related indicators. We used some loss functions such as mean absolute error (MAE) as error evaluation criteria. On the other hand, we used some time series models forecasting like ARMA and ARIMA for prediction of stock price. Finally, we compared the results with each other means ANN-Metaheuristic algorithms and time series models. The statistical population of research have five most important and international indices which were S&P500, DAX, FTSE100, Nasdaq and DJI.

Data science approach to stock prices forecasting in Indonesia during Covid-19 using Long Short-Term Memory (LSTM)

BACKGROUND

Stock market process is full of uncertainty; hence stock prices forecasting very important in finance and business. For stockbrokers, understanding trends and supported by prediction software for forecasting is very important for decision making. This paper proposes a data science model for stock prices forecasting in Indonesian exchange based on the statistical computing based on R language and Long Short-Term Memory (LSTM).

FINDINGS

The first Covid-19 (Coronavirus disease-19) confirmed case in Indonesia is on 2 March 2020. After that, the composite stock price index has plunged 28% since the start of the year and the share prices of cigarette producers and banks in the midst of the corona pandemic reached their lowest value on March 24, 2020. We use the big data from Bank of Central Asia (BCA) and Bank of Mandiri from Indonesia obtained from Yahoo finance. In our experiments, we visualize the data using data science and predict and simulate the important prices called Open, High, Low and Closing (OHLC) with various parameters.

CONCLUSIONS

Based on the experiment, data science is very useful for visualization data and our proposed method using Long Short-Term Memory (LSTM) can be used as predictor in short term data with accuracy 94.57% comes from the short term (1 year) with high epoch in training phase rather than using 3 years training data.

A Novel Framework of Real-Time Regional Collision Risk Prediction Based on the RNN Approach

Regional collision risk identification and prediction is important for traffic surveillance in maritime transportation. This study proposes a framework of real-time prediction for regional collision risk by combining Density-Based Spatial Clustering of Applications with Noise (DBSCAN) technique, Shapley value method and Recurrent Neural Network (RNN). Firstly, the DBSCAN technique is applied to cluster vessels in specific sea area. Then the regional collision risk is quantified by calculating the contribution of each vessel and each cluster with Shapley value method. Afterwards, the optimized RNN method is employed to predict the regional collision risk of specific seas in short time. As a result, the framework is able to determine and forecast the regional collision risk precisely. At last, a case study is carried out with actual Automatic Identification System (AIS) data, the results show that the proposed framework is an effective tool for regional collision risk identification and prediction.

An Improved Probabilistic Neural Network Model for Directional Prediction of a Stock Market Index

Financial market prediction attracts immense interest among researchers nowadays due to rapid increase in the investments of financial markets in the last few decades. The stock market is one of the leading financial markets due to importance and interest of many stakeholders. With the development of machine learning techniques, the financial industry thrived with the enhancement of the forecasting ability. Probabilistic neural network (PNN) is a promising machine learning technique which can be used to forecast financial markets with a higher accuracy. A major limitation of PNN is the assumption of Gaussian distribution as the distribution of input variables which is violated with respect to financial data. The main objective of this study is to improve the standard PNN by incorporating a proper multivariate distribution as the joint distribution of input variables and addressing the multi-class imbalanced problem persisting in the directional prediction of the stock market. This model building process is illustrated and tested with daily close prices of three stock market indices: AORD, GSPC and ASPI and related financial market indices. Results proved that scaled t distribution with location, scale and shape parameters can be used as more suitable distribution for financial return series. Global optimization methods are more appropriate to estimate better parameters of multivariate distributions. The global optimization technique used in this study is capable of estimating parameters with considerably high dimensional multivariate distributions. The proposed PNN model, which considers multivariate scaled t distribution as the joint distribution of input variables, exhibits better performance than the standard PNN model. The ensemble technique: multi-class undersampling based bagging (MCUB) was introduced to handle class imbalanced problem in PNNs is capable enough to resolve multi-class imbalanced problem persisting in both standard and proposed PNNs. Final model proposed in the study with proposed PNN and proposed MCUB technique is competent in forecasting the direction of a given stock market index with higher accuracy, which helps stakeholders of stock markets make accurate decisions.

A Novel Hybrid Model for Stock Price Forecasting Based on Metaheuristics and Support Vector Machine

This paper intends to present a new model for the accurate forecast of the stock’s future price. Stock price forecasting is one of the most complicated issues in view of the high fluctuation of the stock exchange and also it is a key issue for traders and investors. Many predicting models were upgraded by academy investigators to predict stock price. Despite this, after reviewing the past research, there are several negative aspects in the previous approaches, namely: (1) stringent statistical hypotheses are essential; (2) human interventions take part in predicting process; and (3) an appropriate range is complex to be discovered. Due to the problems mentioned, we plan to provide a new integrated approach based on Artificial Bee Colony (ABC), Adaptive Neuro-Fuzzy Inference System (ANFIS), and Support Vector Machine (SVM). ABC is employed to optimize the technical indicators for forecasting instruments. To achieve a more precise approach, ANFIS has been applied to predict long-run price fluctuations of the stocks. SVM was applied to create the nexus between the stock price and technical indicator and to further decrease the forecasting errors of the presented model, whose performance is examined by five criteria. The comparative outcomes, obtained by running on datasets taken from 50 largest companies of the U.S. Stock Exchange from 2008 to 2018, have clearly demonstrated that the suggested approach outperforms the other methods in accuracy and quality. The findings proved that our model is a successful instrument in stock price forecasting and will assist traders and investors to identify stock price trends, as well as it is an innovation in algorithmic trading.

Parallel Multistream Training of High-Dimensional Neural Network Potentials

Over the past years high-dimensional neural network potentials (HDNNPs), fitted to accurately reproduce ab initio potential energy surfaces, have become a powerful tool in chemistry, physics and materials science. Here, we focus on the training of the neural networks that lies at the heart of the HDNNP method. We present an efficient approach for optimizing the weight parameters of the neural network via multistream Kalman filtering, using potential energies and forces as reference data. In this procedure, the choice of the free parameters of the Kalman filter can have a significant impact on the fit quality. Carrying out a large parameter study, we determine optimal settings and demonstrate how to optimize training results of HDNNPs. Moreover, we illustrate our HDNNP training approach by revisiting previously presented fits for water and developing a new potential for copper sulfide. This material, accessible in computer simulations so far only via first-principles methods, forms a particularly complex solid structure at low temperatures and undergoes a phase transition to a superionic state upon heating. Analyzing MD simulations carried out with the Cu₂S HDNNP, we confirm that the underlying ab initio reference method indeed reproduces this behavior.

Financial time series forecasting using twin support vector regression

Financial time series forecasting is a crucial measure for improving and making more robust financial decisions throughout the world. Noisy data and non-stationarity information are the two key factors in financial time series prediction. This paper proposes twin support vector regression for financial time series prediction to deal with noisy data and nonstationary information. Various interesting financial time series datasets across a wide range of industries, such as information technology, the stock market, the banking sector, and the oil and petroleum sector, are used for numerical experiments. Further, to test the accuracy of the prediction of the time series, the root mean squared error and the standard deviation are computed, which clearly indicate the usefulness and applicability of the proposed method. The twin support vector regression is computationally faster than other standard support vector regression on the given 44 datasets.

Dynamic Advisor-Based Ensemble (dynABE): Case study in stock trend prediction of critical metal companies

Stock trend prediction is a challenging task due to the market’s noise, and machine learning techniques have recently been successful in coping with this challenge. In this research, we create a novel framework for stock prediction, Dynamic Advisor-Based Ensemble (dynABE). dynABE explores domain-specific areas based on the companies of interest, diversifies the feature set by creating different “advisors” that each handles a different area, follows an effective model ensemble procedure for each advisor, and combines the advisors together in a second-level ensemble through an online update strategy we developed. dynABE is able to adapt to price pattern changes of the market during the active trading period robustly, without needing to retrain the entire model. We test dynABE on three cobalt-related companies, and it achieves the best-case misclassification error of 31.12% and an annualized absolute return of 359.55% with zero maximum drawdown. dynABE also consistently outperforms the baseline models of support vector machine, neural network, and random forest in all case studies.

Genetic Algorithm-Optimized Long Short-Term Memory Network for Stock Market Prediction

With recent advances in computing technology, massive amounts of data and information are being constantly accumulated. Especially in the field of finance, we have great opportunities to create useful insights by analyzing that information, because the financial market produces a tremendous amount of real-time data, including transaction records. Accordingly, this study intends to develop a novel stock market prediction model using the available financial data. We adopt deep learning technique because of its excellent learning ability from the massive dataset. In this study, we propose a hybrid approach integrating long short-term memory (LSTM) network and genetic algorithm (GA). Heretofore, trial and error based on heuristics is commonly used to estimate the time window size and architectural factors of LSTM network. This research investigates the temporal property of stock market data by suggesting a systematic method to determine the time window size and topology for the LSTM network using GA. To evaluate the proposed hybrid approach, we have chosen daily Korea Stock Price Index (KOSPI) data. The experimental result demonstrates that the hybrid model of LSTM network and GA outperforms the benchmark model.

Deep Direct Reinforcement Learning for Financial Signal Representation and Trading

Can we train the computer to beat experienced traders for financial assert trading? In this paper, we try to address this challenge by introducing a recurrent deep neural network (NN) for real-time financial signal representation and trading. Our model is inspired by two biological-related learning concepts of deep learning (DL) and reinforcement learning (RL). In the framework, the DL part automatically senses the dynamic market condition for informative feature learning. Then, the RL module interacts with deep representations and makes trading decisions to accumulate the ultimate rewards in an unknown environment. The learning system is implemented in a complex NN that exhibits both the deep and recurrent structures. Hence, we propose a task-aware backpropagation through time method to cope with the gradient vanishing issue in deep training. The robustness of the neural system is verified on both the stock and the commodity future markets under broad testing conditions.

Global robust dissipativity of interval recurrent neural networks with time-varying delay and discontinuous activations

In this paper, the problems of robust dissipativity and robust exponential dissipativity are discussed for a class of recurrent neural networks with time-varying delay and discontinuous activations. We extend an invariance principle for the study of the dissipativity problem of delay systems to the discontinuous case. Based on the developed theory, some novel criteria for checking the global robust dissipativity and global robust exponential dissipativity of the addressed neural network model are established by constructing appropriate Lyapunov functionals and employing the theory of Filippov systems and matrix inequality techniques. The effectiveness of the theoretical results is shown by two examples with numerical simulations.

High-Density Liquid-State Machine Circuitry for Time-Series Forecasting

Spiking neural networks (SNN) are the last neural network generation that try to mimic the real behavior of biological neurons. Although most research in this area is done through software applications, it is in hardware implementations in which the intrinsic parallelism of these computing systems are more efficiently exploited. Liquid state machines (LSM) have arisen as a strategic technique to implement recurrent designs of SNN with a simple learning methodology. In this work, we show a new low-cost methodology to implement high-density LSM by using Boolean gates. The proposed method is based on the use of probabilistic computing concepts to reduce hardware requirements, thus considerably increasing the neuron count per chip. The result is a highly functional system that is applied to high-speed time series forecasting.

Predicting the Direction of Stock Market Index Movement Using an Optimized Artificial Neural Network Model

In the business sector, it has always been a difficult task to predict the exact daily price of the stock market index; hence, there is a great deal of research being conducted regarding the prediction of the direction of stock price index movement. Many factors such as political events, general economic conditions, and traders’ expectations may have an influence on the stock market index. There are numerous research studies that use similar indicators to forecast the direction of the stock market index. In this study, we compare two basic types of input variables to predict the direction of the daily stock market index. The main contribution of this study is the ability to predict the direction of the next day’s price of the Japanese stock market index by using an optimized artificial neural network (ANN) model. To improve the prediction accuracy of the trend of the stock market index in the future, we optimize the ANN model using genetic algorithms (GA). We demonstrate and verify the predictability of stock price direction by using the hybrid GA-ANN model and then compare the performance with prior studies. Empirical results show that the Type 2 input variables can generate a higher forecast accuracy and that it is possible to enhance the performance of the optimized ANN model by selecting input variables appropriately.

Reproducing kernel Hilbert spaces with odd kernels in price prediction

For time series of futures contract prices, the expected price change is modeled conditional on past price changes. The proposed model takes the form of regression in a reproducing kernel Hilbert space with the constraint that the regression function must be odd. It is shown how the resulting constrained optimization problem can be reduced to an unconstrained one through appropriate modification of the kernel. In particular, it is shown how odd, even, and other similar kernels emerge naturally as the reproducing kernels of Hilbert subspaces induced by respective symmetry constraints. To test the validity and practical usefulness of the oddness assumption, experiments are run with large real-world datasets on four futures contracts, and it is demonstrated that using odd kernels results in a higher predictive accuracy and a reduced tendency to overfit.

CHANCE DISCOVERY IN STOCK INDEX OPTION AND FUTURES ARBITRAGE

The prices of the option and futures of a stock both reflect the market's expectation of futures changes of the stock's price. Their prices normally align with each other within a limited window. When they do not, arbitrage opportunities arise: an investor who spots the misalignment will be able to buy (sell) options on the one hand, and sell (buy) futures on the other and make risk-free profits. Historical data suggest that option and futures prices on the LIFFE Market do not align occasionally. Arbitrage chances are rare. Besides, they last for seconds only before the market adjusts itself. The challenge is not only to discover such chances, but to discover them ahead of other arbitragers. In the past, we have introduced EDDIE as a genetic programming tool for forecasting. This paper describes EDDIE-ARB, a specialization of EDDIE, for forecasting arbitrage opportunities. As a tool, EDDIE-ARB was designed to enable economists and computer scientists to work together to identify relevant independent variables. Trained on historical data, EDDIE-ARB was capable of discovering rules with high precision. Tested on out-of-sample data, EDDIE-ARB out-performed a naive ex ante rule, which reacted only when misalignments were detected. This establishes EDDIE-ARB as a promising tool for arbitrage chances discovery. It also demonstrates how EDDIE brings domain experts and computer scientists together.

Different Roles and Definitions of Spatial Data Fusion

Geographic information is created by manipulating geographic (or spatial) data (generally known by the abbreviation geodata) in a computerized system. Geo-spatial information and geomatics are issues of modern business and research. It is essential to provide their different definitions and roles in order to get an overall picture of the issue. This article discusses about the problematic of definitions, but also the technologies and challenges within spatial data fusion.

A Survey of Optimized Learning Pathway Planning and Assessment Paper Generation with Swarm Intelligence

One major direction in research on technology-enabled learning systems revolves round the notion of generating optimal learning pathways. Two examples of the application areas that could be presented as search and optimization problem in the context of Artificial Intelligence are:- (1) Adaptive selection and sequencing of learning objects based on the learning profiles, preferences and abilities of individual learners; (2) Automatic composition of assessment or examination papers based on instructors‘ specifications. In this chapter, we present a critical discussion of the research which is concerned with the application of the paradigm of “swarm intelligence” in these two areas. The main aim of this survey is to highlight the new trends and key research achievements that have been realised in the last few years. We will also outline a range of relevant research issues and challenges that have been generated by this body of work.

Financial volatility trading using a self-organising neural-fuzzy semantic network and option straddle-based approach

Financial volatility refers to the intensity of the fluctuations in the expected return on an investment or the pricing of a financial asset due to market uncertainties. Hence, volatility modeling and forecasting is imperative to financial market investors, as such projections allow the investors to adjust their trading strategies in anticipation of the impending financial market movements. Following this, financial volatility trading is the capitalization of the uncertainties of the financial markets to realize investment profits in times of rising, falling and side-way market conditions. In this paper, an intelligent straddle trading system (framework) that consists of a volatility projection module (VPM) and a trade decision module (TDM) is proposed for financial volatility trading via the buying and selling of option straddles to help a human trader capitalizes on the underlying uncertainties of the Hong Kong stock market. Three different measures, namely: (1) the historical volatility (HV), (2) implied volatility (IV) and (3) model-based volatility (MV) of the Hang Seng Index (HSI) are employed to quantify the implicit volatility of the Hong Kong stock market. The TDM of the proposed straddle trading system combines the respective volatility measures with the well-established moving-averages convergence/divergence (MACD) principle to recommend trading actions to a human trader dealing in HSI straddles. However, the inherent limitation of the MACD trading rule is that it generates time-delayed trading signals due to the use of moving averages, which are essentially lagging trend indicators. This drawback is intuitively addressed in the proposed straddle trading system by applying the VPM to compute future projections of the volatility measures of the HSI prior to the activation of the TDM. The VPM is realized by a self-organising neural-fuzzy semantic network named the evolving fuzzy semantic memory (eFSM) model. As compared to existing statistical and computational intelligence based modeling techniques currently employed for financial volatility modeling and forecasting, eFSM possesses several desirable attributes such as: (1) an evolvable knowledge base to continuously address the non-stationary characteristics of the Hong Kong stock market; (2) highly formalized human-like information computations; and (3) a transparent structure that can be interpreted via a set of linguistic IF-THEN semantic fuzzy rules. These qualities provide added credence to the computed HSI volatility projections. The volatility modeling and forecasting performances of the eFSM, when benchmarked to several established modeling techniques, as well as the observed trading returns of the proposed straddle trading system, are encouraging.