|  DEC 1994

A Personal Neural Net Trading System by James Stakelum

A Personal Neural Net Trading System by James Stakelum What goes through the mind of someone developing a neural network trading system? What are the steps involved in putting together something that mimics the mystery of the human mind? Here are some clues. Neural networks are a promising technology for quantifying the probabilities of rewards and risks in trading the global financial markets today. Although excellent neural network software products are abundant and available for the trader, I chose to design and program my own and then use my neural network software as the foundation for a unique, well-conceived trading system. I decided to undertake such an effort to gain an intimate understanding of neural network technology and to be able to customize my neural network software to operate exactly the way I wanted it to. For those interested in using a neural net to produce trading recommendations, here's some insight into the issues involved in working with this technology as a tool for trading the markets. In this, the first of two parts, I present a definition of a neural network, a description of optimization methods and a discussion of how the neural network software I designed works. Next time, I will present a detailed description of how my neural network functions, including how to preprocess data and how to use probabilities in the system I created to produce market buy and sell recommendations.

by James Stakelum