DADE-DQN: Dual Action and Dual Environment Deep Q-Network for Enhancing Stock Trading Strategy

Yuling Huang, Xiaoping Lu (), Chujin Zhou and Yunlin Song
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Yuling Huang: School of Computer Science and Engineering, Macau University of Science and Technology, Taipa, Macao, China
Xiaoping Lu: School of Computer Science and Engineering, Macau University of Science and Technology, Taipa, Macao, China
Chujin Zhou: School of Computer Science and Engineering, Macau University of Science and Technology, Taipa, Macao, China
Yunlin Song: Department of Engineering Science, Faculty of Innovation Engineering, Macau University of Science and Technology, Taipa, Macao, China

Mathematics, 2023, vol. 11, issue 17, 1-27

Abstract: Deep reinforcement learning (DRL) has attracted strong interest since AlphaGo beat human professionals, and its applications in stock trading are widespread. In this paper, an enhanced stock trading strategy called Dual Action and Dual Environment Deep Q-Network (DADE-DQN) for profit and risk reduction is proposed. Our approach incorporates several key highlights. First, to achieve a better balance between exploration and exploitation, a dual-action selection and dual-environment mechanism are incorporated into our DQN framework. Second, our approach optimizes the utilization of storage transitions by utilizing independent replay memories and performing dual mini-batch updates, leading to faster convergence and more efficient learning. Third, a novel deep network structure that incorporates Long Short-Term Memory (LSTM) and attention mechanisms is introduced, thereby improving the network’s ability to capture essential features and patterns. In addition, an innovative feature selection method is presented to efficiently enhance the input data by utilizing mutual information to identify and eliminate irrelevant features. Evaluation on six datasets shows that our DADE-DQN algorithm outperforms multiple DRL-based strategies (TDQN, DQN-Pattern, DQN-Vanilla) and traditional strategies (B&H, S&H, MR, TF). For example, on the KS11 dataset, the DADE-DQN strategy has achieved an impressive cumulative return of 79.43% and a Sharpe ratio of 2.21, outperforming all other methods. These experimental results demonstrate the performance of our approach in enhancing stock trading strategies.

Keywords: deep reinforcement learning; mutual information; deep learning; algorithmic trading (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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