Stick to the (An)timetab(o)le! Machine Learning to Learning Machine
Boolean Algorithmic Trading
A proprietary quantitative investment management firm managing a hedge fund strategy using AI with statistical methods
To understand Machine Learning (ML), we need to first understand its superset i.e. Artificial Intelligence (AI).
At its most basic level, ML uses?programmed algorithms that receive and analyse input data to predict output?values within a pre-defined acceptable range. As new data is fed to these algorithms, they?learn and optimise their operations to improve performance, developing ‘intelligence’?over time.
The types of ML algorithms are?supervised, unsupervised and reinforcement.
Here the machine is?taught by example i.e. a data scientist provides the ML algorithm with a?known dataset; also known as training dataset. This includes desired inputs and outputs, and the algorithm must?find a method to determine how to arrive at those inputs and outputs. So, knowing the correct answers to the problem, the algorithm's job is to identify?patterns in data, learn from its observations and makes predictions as accurately as possible. eg: K-Nearest-Neighbor (KNN), Random Forests, Naive Bayes, Decision Trees, Linear Regression
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Here, the ML algorithm studies data to?identify patterns as no pre-set instructions have been provided. Instead, the machine determines the correlations and relationships?by analysing available dataset. The?algorithm then tries to organise that data in some way to define its structure; it could be by means of grouping the data into clusters or groups with similar features or arranging it in a?more organised manner. As it assesses and is fed more data, its ability to?make decisions on that data gradually improves and it eventually becomes more refined. eg: Principal Component Analysis (PCA)
Reinforcement learning focuses on?a systematic learning process, where a ML algorithm is provided with a set of actions,?parameters and end values. By defining the rules, the machine learning algorithm then tries to?explore different options and possibilities, monitoring and evaluating each?result to determine which one is optimal. Reinforcement learning teaches the?machine, trial and error. It learns from past experiences and begins to adapt?its approach in response to the situation to achieve the best possible result. eg: Markov Decision process
Choosing the appropriate ML algorithm?depends on several factors, including, but not limited to data size, data quality, data diversity, data accuracy, training time, parameters as well as what answers businesses want to derive from that?data.
Therefore, choosing the right ML algorithm is both a?combination of business need, specification and time?available.