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I have a question about Random forests and how they could be utilized in trading? I heard Random forests are used for classification, is that accurate? If so, could someone give an example of what sort of classification does it help with? If not, what are Random forests used for in Quant finance? |
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I have not used random forests myself but I know of a guy who applied this classification technique to machine learning algorithms applied to pattern recognition. Thus I think its advantages over classic regression approaches can be applied to discern patterns in financial data, though I get the impression that it vastly overfits the data and thus you end up with the classical trade-off that many quants are faced with. I also read that it is used by the SEC where they apply it in their quest to analyze trading patterns to flag insider trading violations. |
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