A step-by-step implementation of a multi-agent currency trading system

Abstract

With this chapter we intend to demonstrate the potential practical use of intelligent agents as autonomous financial traders. We propose an architecture intended for the creation of this type of agents, consisting of an ensemble of classification and regression models, a case-based reasoning system and an expert system. This architecture was used to implement six intelligent agents, each being responsible for trading one of the following currency pairs with a 6-hour timeframe: CHF/JPY, EUR/CHF, EUR/JPY, EUR/USD, USD/CHF and USD/JPY. These agents simulated trades during the out-of-sample period going from February of 2007 till July of 2010, having all achieved an acceptable performance. However, their strategies resulted in relatively high drawdows, and much of their profit disappeared once the trading costs were factored in the trading simulation. In order to overcome these problems, we integrated the agents in a multi-agent system, in which the agents communicate their decisions to each other before sending any market orders, and work together to eliminate redundant trades. This system averaged out the returns of the agents, thus eliminating much of the risk associated with their individual trading strategies, and also originated considerable savings in the trading expenses. Our results seem to vindicate the usefulness of the proposed trading agent architecture, and also demonstrate that there is indeed a place for intelligent agents in financial markets.