Deep Reinforcement Learning for Trading (Python Tutorial)

Photo by Michael Dziedzic on Unsplash.com

Reinforcement learning (RL) is a subfield of machine learning that involves training an agent to learn a series of actions that maximize a cumulative reward. RL has shown promise in a variety of applications, including trading. In this post, we'll explore how Deep Reinforcement Learning (DRL) can be used for trading with Python.

This story is solely for general information purposes, and should not be relied upon for trading recommendations or financial advice. Source code has not been tested and should not be used for live trading. Please review my full cautionary guidance before continuing.

What is Deep Reinforcement Learning?

Deep Reinforcement Learning (DLR) is a type of RL that uses neural networks to learn complex strategies. Unlike traditional Reinforcement Learning (RL), which uses a simple model to represent the agent's state and action space, DRL allows the agent to learn from raw data inputs, enabling it to handle high-dimensional state spaces and complex action spaces.

The neural network used in DRL is called the deep Q-network (DQN), which uses a variant of the Q-learning algorithm to learn the optimal policy. The DQN receives a state as input and outputs a Q-value for each possible action in that state. The agent then selects the action with the highest Q-value and performs it.

Challenges of using DRL for trading

While DRL has shown promise in trading, it also poses several challenges:

One of the main challenges is data preprocessing. Trading data can be noisy and volatile, which can make it difficult to train a DRL model.

Additionally, DRL models can suffer from overfitting, which occurs when the model becomes too complex and begins to memorize the training data rather than learning a generalizable trading strategy.

Finally, DRL models can be difficult to interpret, which can make it challenging to understand why the model is making certain trading decisions.

StockDads.com is a thriving trading community with AI trading stock/crypto alerts, expert advice and a ton of educational materials. Get a 30% forever discount with code ‘BOTRADING’.