Language Model Guided Reinforcement Learning in Quantitative Trading

Adam Darmanin and Vince Vella

Papers from arXiv.org

Abstract: Algorithmic trading requires short-term tactical decisions consistent with long-term financial objectives. Reinforcement Learning (RL) has been applied to such problems, but adoption is limited by myopic behaviour and opaque policies. Large Language Models (LLMs) offer complementary strategic reasoning and multi-modal signal interpretation when guided by well-structured prompts. This paper proposes a hybrid framework in which LLMs generate high-level trading strategies to guide RL agents. We evaluate (i) the economic rationale of LLM-generated strategies through expert review, and (ii) the performance of LLM-guided agents against unguided RL baselines using Sharpe Ratio (SR) and Maximum Drawdown (MDD). Empirical results indicate that LLM guidance improves both return and risk metrics relative to standard RL.

Date: 2025-08, Revised 2025-10
New Economics Papers: this item is included in nep-ain, nep-big and nep-cmp
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