I'm an engineer doing academic research for my master thesis in the area of quantitative finance, basically the purpose is to study the possibility to create an intraday-trading algorithm.
I've tried a regression algorithm (SVR) to predict future prices without success and currently I'm using Boosted Decision Trees (BDT) for a classification problem (Long/Short/Out) where I would take advantage of a daily trend (place an order at the beginning of the day, sell at the end of the day), for example:
- Long when BDT predicts Close > Open*(1+a)
- Short when BDT predicts Close < Open*(1-a), where 'a' is an error gap;
I'm using technical indicators: RSI, MFI, SMA, EMA, MACD, ATR, Bollinger, and linear combinations of them. I think I'm doing everything right, all the indicator values are normalized with the Open price, I'm using cross validated metrics and a grid search to look at different combination of parameters for both the technical indicators and Boosted Decision Trees.
But until now it seems that, at least at the intraday level, the market is just a stochastic process! I have also read a few articles available online and found a couple of errors on them (using lagged data or indicator values, for example), which leads me to believe that most of the literature is just junk, I mean it's impossible if everyone that tries to create a trading algorithm that generates positive returns is successful, right?! I won't even talk about the ridiculous articles using technical analysis with the supports and resistances, I generated a Geometric Brownian Motion plot and I also see those hypothetical supports and resistances, but there is no rational behind them, just people's imagination of things that don't exist.
What is your opinion on this subject? Do you have knowledge of a successful intraday trading algorithm? With what kind of average daily returns (0.01%,0.1%,1%)?