Beyond Trend Following: Deep Learning for Market Trend Prediction

TL;DR

This paper proposes using advanced AI and machine learning techniques to predict future market trends, aiming to enhance asset management performance beyond traditional methods like trend following.

Contribution

It introduces a novel approach applying AI/ML for market trend prediction, moving beyond past-focused strategies to improve investment outcomes.

Findings

AI/ML can better predict future market trends

Predictions can increase returns

Predictions can reduce drawdowns

Abstract

Trend following and momentum investing are common strategies employed by asset managers. Even though they can be helpful in the proper situations, they are limited in the sense that they work just by looking at past, as if we were driving with our focus on the rearview mirror. In this paper, we advocate for the use of Artificial Intelligence and Machine Learning techniques to predict future market trends. These predictions, when done properly, can improve the performance of asset managers by increasing returns and reducing drawdowns.