Question:

How can AI discover novel chartist patterns in stock market data?

I would like to know if there is a way to use an unsupervised learning algorithm to identify recurrent patterns in stock price movements that are predictive of future trends. I do not want to use any predefined chartist patterns as input, but rather let the algorithm find its own patterns based on the data. I am interested in seeing if the algorithm can generate new and original chartist patterns that differ from the ones commonly used by human analysts, similar to how Deep Mind’s AlphaGo found innovative strategies to play Go.

Answer:

Chartist patterns are graphical representations of price movements that are used by traders and investors to identify trends, reversals, and trading opportunities in the stock market. Chartist patterns are based on the assumption that history tends to repeat itself, and that certain patterns can indicate the likely direction of future prices.

However, chartist patterns are not always reliable, and they may vary depending on the time frame, the market conditions, and the subjective interpretation of the analyst. Moreover, chartist patterns are often based on human intuition and experience, which may limit their scope and creativity.

This is where artificial intelligence (AI) can come in handy. AI is the branch of computer science that deals with creating machines and systems that can perform tasks that normally require human intelligence, such as learning, reasoning, and problem-solving. AI can potentially discover novel chartist patterns in stock market data by using unsupervised learning algorithms.

Unsupervised learning is a type of machine learning that does not require any labeled data or predefined rules as input. Instead, unsupervised learning algorithms try to find hidden patterns and structures in the data by themselves, without any human guidance or supervision. Unsupervised learning algorithms can be used for tasks such as clustering, dimensionality reduction, anomaly detection, and generative modeling.

One possible way to use unsupervised learning to discover novel chartist patterns is to use a generative adversarial network (GAN). A GAN is a type of neural network that consists of two components: a generator and a discriminator. The generator tries to create realistic-looking data (such as images or text) from random noise, while the discriminator tries to distinguish between the real data and the fake data generated by the generator. The generator and the discriminator compete with each other in a game-like scenario, where the generator tries to fool the discriminator, and the discriminator tries to catch the generator. Through this process, the generator learns to produce more and more realistic data, and the discriminator learns to become more and more accurate.

A GAN can be applied to stock market data by feeding the generator with historical price data of a certain stock or index, and letting it generate new price data that follows the same distribution and characteristics. The discriminator can then evaluate the generated data and provide feedback to the generator. The generator can then use this feedback to improve its output and generate more realistic and novel price data. The generated data can then be analyzed for any recurrent patterns that are predictive of future trends. These patterns can be considered as novel chartist patterns that are discovered by the AI.

The advantage of using a GAN to discover novel chartist patterns is that it can potentially generate patterns that are not limited by human intuition or experience, and that can capture complex and nonlinear relationships in the data. The disadvantage is that the generated patterns may not be easily interpretable or explainable by human analysts, and that they may require further validation and testing before being used for trading or investing.

An example of a research paper that uses a GAN to discover novel chartist patterns is [this one](https://arxiv.org/abs/1907.06673), which proposes a framework called Chart Pattern GAN (CPGAN) that can generate realistic and diverse chart patterns for stock market analysis.

The paper claims that CPGAN can generate novel chart patterns that are not found in existing chart pattern catalogs, and that some of these patterns can be used to predict future price movements with high accuracy.

In conclusion, AI can discover novel chartist patterns in stock market data by using unsupervised learning algorithms, such as GANs, that can generate realistic and original price data from historical data. These generated data can then be searched for recurrent patterns that are indicative of future trends. However, the challenges of using AI to discover novel chartist patterns include the interpretability, explainability, and validity of the generated patterns, as well as the ethical and legal implications of using AI for stock market analysis.