3Machine Learning in Finance
3.1 Machine Learning for Forecasting
So far, we have introduced the synergy between computing and finance in algorithmic trading. We have also explained the success and limitations of machine learning. In this section, we shall take a closer look at an application of machine learning in finance: forecasting.
Forecasting is an important subject in finance. The hope is to predict what is going to happen based on what has been observed so far. We shall focus on the following forecasting target, which we introduced in Chapter 1:
Forecast Target 1: “Will the FTSE 100 Index rise by 4% within the next 7 days?”
The first step in applying machine learning to forecasting is to define the ...
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