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A critical feature extraction by kernel PCA in stock trading model

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Abstract

This paper presents a kernel-based principal component analysis (kernel PCA) to extract critical features for improving the performance of a stock trading model. The feature extraction method is one of the techniques to solve dimensionality reduction problems (DRP). The kernel PCA is a feature extraction approach which has been applied to data transformation from known variables to capture critical information. The kernel PCA is a kernel-based data mapping tool that has characteristics of both principal component analysis and non-linear mapping. The feature selection method is another DRP technique that selects only a small set of features from known variables, but these features still indicate possible collinearity problems that fail to reflect clear information. However, most feature extraction methods use a variable mapping application to eliminate noisy and collinear variables. In this research, we use the kernel-PCA method in a stock trading model to transform stock technical indices (TI) which allows features of smaller dimension to be formed. The kernel-PCA method has been applied to various stocks and sliding window testing methods using both half-year and 1-year testing strategies. The experimental results show that the proposed method generates more profits than other DRP methods on the America stock market. This stock trading model is very practical for real-world application, and it can be implemented in a real-time environment.

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Authors and Affiliations

  1. Innovation Center of Big Data & Digital Convergence and Department of Information Management, Yuan Ze University, Taoyuan, Taiwan

    Pei-Chann Chang & Jheng-Long Wu

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  1. Pei-Chann Chang
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  2. Jheng-Long Wu
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Correspondence to Pei-Chann Chang.

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Communicated by V. Loia.

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Chang, PC., Wu, JL. A critical feature extraction by kernel PCA in stock trading model. Soft Comput 19, 1393–1408 (2015). https://doi.org/10.1007/s00500-014-1350-5

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  • DOI: https://doi.org/10.1007/s00500-014-1350-5

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