Mastering Python for Finance - Second Edition

K-nearest neighbors machine learning algorithm

The k-nearest neighbors (KNN) is a lazy learning technique that does not build any models.

An initial set of backtest model parameters are chosen either by random or best guess.

After analyzing the results of the model, a k number of sets of parameters that is closest to the original set are used for computation in the next step. The model will then take the set of parameters that gives the best results.

The process continues until the terminating condition is reached, thereby always giving the best set of model parameters available.