Neural Network In Python: Introduction, Structure And Trading Strategies – Part V

QuantInsti

Contributor:
QuantInsti
Visit: QuantInsti

In the previous installment, Devang discussed Gradient Descent. Today the author will discuss Backpropagation.

Backpropagation is an advanced algorithm which enables us to update all the weights in the neural network simultaneously. This drastically reduces the complexity of the process to adjust weights. If we were not using this algorithm, we would have to adjust each weight individually by figuring out what impact that particular weight has on the error in the estimation. Let us look at the steps involved in training the neural network with Stochastic Gradient Descent:

  • Initialize the weights to small numbers very close to 0 (but not 0)
  • Forward propagation – the neurons are activated from left to right, by using the first data entry in our training dataset, until we arrive at the estimated result y
  • Measure the error which will be generated
  • Backpropagation – the error generated will be backpropagated from right to left, and the weights will be adjusted according to the learning rate
  • Repeat the previous three steps, forward propagation, error computation and backpropagation on the entire training dataset
  • This would mark the end of the first epoch, the successive epochs will begin with the weight values of the previous epochs, we can stop this process when the cost function converges within a certain acceptable limit

Stay tuned for the next installment in which Devang will show us how to code a strategy in a neural network and how to code the Artificial Neural Network in Python, making use of powerful libraries.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from QuantInsti and is being posted with permission from QuantInsti. The views expressed in this material are solely those of the author and/or QuantInsti and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.