What Do Neural Networks Do?
Neural networks used in trading vary greatly. They range from those that rely purely on genetic concepts to those that involve complex neural network models. The neural models that use pure genetic programming use historical data (inputs) and randomly generated equations (functions) to create effective buy/sell rules. The process starts with the creation of an “individual” by running the inputs through a given function. Then random individuals (of which the better performers are given preference) are taken to create a second-generation hybrid. This process continues through several generations, each perfecting the equation. The end result, in theory, is a perfect equation that will be able to generate profitable buy/sell signals. Fortunately, much of this can be accomplished via an easy-to-use graphic-user-interface (GUI) program. Here is an example from Merchant of Venice (http://mov.sourceforge.net/), which is a free project on equity analysis: Here you can simply input the number of
