Decision Trees for Intuitive Intraday Trading Strategies

TL;DR

This paper explores using decision trees to develop personalized intraday trading strategies based on technical indicators, showing they can outperform buy-and-hold for many stocks in the NIFTY50 index.

Contribution

It introduces a novel approach of applying decision trees to generate stock-specific intraday trading rules, improving performance over traditional fixed-rule methods.

Findings

Decision tree strategies outperform buy-and-hold for many stocks.

The method creates unique, stock-specific trading rules.

Decision trees are effective tools for intraday trading enhancement.

Abstract

This research paper aims to investigate the efficacy of decision trees in constructing intraday trading strategies using existing technical indicators for individual equities in the NIFTY50 index. Unlike conventional methods that rely on a fixed set of rules based on combinations of technical indicators developed by a human trader through their analysis, the proposed approach leverages decision trees to create unique trading rules for each stock, potentially enhancing trading performance and saving time. By extensively backtesting the strategy for each stock, a trader can determine whether to employ the rules generated by the decision tree for that specific stock. While this method does not guarantee success for every stock, decision treebased strategies outperform the simple buy-and-hold strategy for many stocks. The results highlight the proficiency of decision trees as a valuable tool for enhancing intraday trading performance on a stock-by-stock basis and could be of interest to traders seeking to improve their trading strategies.