(Proposal) FinTech 16 Pages
(Proposal) FinTech 16 Pages
1- Introduction
In a complex and chaotic world of foreign exchange markets, where currencies are bought and
sold simultaneously. The ability to predict movements and fluctuations that affect trade profitability
within seconds is both a tricky challenge and an attractive opportunity. As technology continues to
evolve, artificial intelligence (AI) has emerged as a powerful tool in decoding the complexities of forex
trading. In this paper, we dig into the fascinating realm of AI in predicting forex market movements and
exchange rate fluctuations. People are becoming more and more active in currency trading these days.
While cryptocurrencies provide higher profits than foreign exchange, trading in the foreign exchange
(Forex) market is more reliable, secure, and regulated than cryptocurrency exchanges.
The foreign exchange market, commonly referred to as FOREX, is the largest in the world
(Levinson, 2014), with daily volume trades exceeding $5.1 trillion (Ozturk, Toroslu, & Fidan, 2016). Its
unknown nature and significant fluctuations in currency rates make it very volatile and complex,
frequently drawing comparisons to the black box (Anastasakis & Mort, 2009). In 1996, the first online
foreign currency trading platform was introduced, opening up the market to retail traders (Cartea,
Huang, & Masulis, 2019). Currency trading is available on the FOREX market around the clock (Masry,
Dupuis, Olsen, & Tsang, 2013), however, it is split into four main time zones (Wanjawa & Muchemi,
2014). These time zones are the Australian zone, Asian Zone, European Zone, and North American Zone.
Each of these zones has its opening hours and closing hours, which creates an arbitrage opportunity.
Its sophisticated web of geopolitical, economic, and psychological factors presents a dynamic
landscape where even the most professional traders find themselves fooled by uncertainty. The phrase
"share" or "stock price" refers to the price of shares, and a stock market is a marketplace for exchanging
stocks (equity) and other financial instruments of publicly traded firms (Ghaznavi et al., 2016). Stock
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market investments are frequently driven by forecasts of some kind [8]. Every day, billions of dollars are
exchanged on the stock market worldwide to turn a profit (Ticknor et al., 2013).
Nowadays, the number of methods that can be used to make predictions is increasing day by day,
as it has an important role to play in predicting future events. More sophisticated calculation models
have been developed and predictions are becoming more accurate as computers and technology advance
rapidly. Traditional methods of analysis often fall short of capturing the fine line and rapid fundamental
changes in currency markets. This is where AI steps in, the ability of a computer or robot controlled by
human beings to perform various actions that are similar to an intelligent creature. The ability to learn
from past experiences is the most important feature. Moreover, in recent times, it has been used widely in
the economy. It has been an important tool, especially for foreign exchange and gold foresight. Testing
whether using sophisticated algorithms and machine learning (ML) techniques combined with an
understanding of economic principles produces better forecasting outcomes than using estimates from
ordinary least squares (OLS) (Amat et al., 2018). To filter through vast amounts of data and uncover
One of the key strengths of AI lies in its ability to adapt and learn from historical data,
of factors including economic indicators, central bank policies, geopolitical events, and market Economic
behavior, AI models can identify trends and correlations that may influence commodities
movements. Moreover, AI systems can process information at speeds far surpassing human capacity,
enabling real-time analysis and decision-making in a market where every second counts.
This study aims to analyze the prices of Bitcoin and gold by employing both traditional and AI-
based methodologies, subsequently comparing their predictive accuracies with the actual market
outcome by examining traditional analyzing techniques alongside advanced AI methods, the research
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attempts to understand the accuracy of each approach in predicting the price movements of these two
marketable assets. Through rigorous analysis and comparison against real-world data, the study seeks to
highlight the strengths and limitations of both traditional and AI-driven prediction models in the context
2 -literature review
In this twenty-first century, the financial market is the pivot, and market economies and stock
prices determine the fate of every expanding economy, nation, or society (Nassirtoussi et al., 2014). Thus,
it is essential to study and learn about the financial market extensively. It's challenging to predict
financial markets because of a variety of uncertainties, including overall economic conditions, social
factors, and domestic and foreign political events (Adebiyi et al., 2012, 2014; Bisoi and Dash, 2014; Ding
et al., 2014; Rajashree et al., 2014; Rather et al., 2014; Lin, 2018). Like other financial variables, the
exchange rate is characterized by uncertainties, making the forecast of its parameters highly
unpredictable. In the financial sector, accurate predictions of important variables, such as the exchange
rate, have a huge influence on the global market and domestic economic policy formulation. The
assessment of the purchasing power of different currencies by both governments and businesses is based
on movements in exchange rates. Therefore, precise exchange rate modeling and forecasting are essential
for relevant trading and investment strategies (Baghestani & Toledo, 2019).
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There are two methods of predicting the market: fundamental and technical analysis.
Fundamental analysis considers many factors, such as the financial system and political state of a
country, the popularity of a company, and all internal and external buying and selling news. In contrast,
technical analysis focuses on predicting future prices based solely on historical data. Basic research,
technical analysis (charting), and technological methods (machine learning) are the three primary ways
for stock market predictions (Dunne, 2015). On the other hand, two categories are distinguished by some
academics: technical analysis and fundamental analysis (Nassirtoussi et al., 2014; Dunne, 2015; Gyan,
2015; Prem Sankar et al., 2015; Ahmadi et al., 2018). Analysts can enhance their overall valuation
estimate with the use of this information. Stock returns are predicted using both technical and
fundamental analysis, aiming to purchase stock at a discount to market value and sell it at a premium.
Despite being different in nature, both methods share the same goal: the evaluation of stock markets.
Is one of the most popular methods for forex forecasting, and was first introduced by Charles
Dow and the Dow Theory in the late 1800s. In order to forecast future price changes, entails examining
historical pricing data and spotting patterns, trends, and other indicators. Making well-informed trading
decisions can help enhance the assessment of a security's strength or weakness in relation to the market
as a whole or one of its sectors. It is frequently used to produce short-term trading signals using various
charting tools.
(Vanstone & Finnie, 2009) brought to light the notion that some methods, including technical and
fundamental analysis, were created to forecast future price returns. Although technical analysis is widely
used by participants in many financial markets, as (Park & Irwin, 2009) note, academics have not
provided technical analysis with much support (Brock, Lakonishok, & LeBaron, 1992), despite the fact
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that it is readily available in financial markets, as (Schulmeister, 2009) has correctly pointed out.
Technical analysis, on the other hand, depends on previous stock price data (Chavarnakul & Enke, 2009).
According to some definitions, technical analysis is a collection of methods for estimating future returns
on financial assets through the examination of historical market data, primarily stock price, and volume
(Park & Irwin, 2007). Studies (Bisoi & Dash, 2014) have integrated statistical models, intelligent system
methodologies, and conventional technical analysis trading principles. Technical analysis is essentially a
set of guidelines or charting that attempts to predict future changes in prices by examining certain data,
such as the buying and selling prices as well as the volume of transactions, among other things (Gorgulho
et al., 2011). Investors who employ this strategy think that the share price takes in and reflects
information that has the power to influence the market (Murphy, 1999). Any security that has past
trading data can be subjected to technical analysis. This covers equities, futures, commodities, currencies,
Technical analysis is really significantly more common in FX and commodities markets since
traders there are more interested in short-term price changes. Although price fluctuations are the most
typical subject of technical analysis, some analysts also monitor other metrics like trade volume or open
interest statistics. Traders employ a variety of instruments and strategies, including oscillators, moving
averages, chart patterns, and Fibonacci retracements. Chart patterns like triangles, head and shoulders,
and double tops can give important information about impending market reversals or continuations.
While oscillators like the Relative Strength Index (RSI) and Stochastic Oscillators show overbought or
oversold circumstances, moving averages aid in trend identification and the determination of support
and resistance levels. Based on the Fibonacci sequence, Fibonacci retracements are used to determine
Technical analysts use charts that show past market prices and technical indicators to try and
anticipate the direction of the stock market (Suresh-Kumar & Elango, 2011). (Filippou, Rapach, Taylor, &
Zhou, 2020) demonstrate that the currency market is predictable in terms of national traits, international
variables, and how they interact; this predictability results in substantial carry trading profits. The first
predictability evidence across bond rating for the corporate bond market is provided by (Guo, Lin, Wu, &
Zhou, 2020), along with a review of the literature. Technical analysis appears useful not only in the stock
market but also across asset classes. Technical analysis seems to be beneficial for many asset types.
However, the predictability is low and tends to decrease over time, much like it does in the stock market.
By examining historical and current stock price movements, a technical analyst can forecast the price of
Based on a review of several Fundamental Analysis literature (Fontanilla & Gentile, 2001), The
concept of Fundamental Analysis, is "Knowledge of the rules and fixed steps access to its objectives of
determining the intrinsic value of shares in stock markets, through a general framework to study the
expected economic forecasts, leading to sectors which generate an increase in sales and profits, therefore
measure strength financial companies, the efficiency of management and business opportunities based
Generally speaking, there are two studies used to calculate share value: technical analysis and
fundamental security analysis (Hartono, 2007). Investors should analyze changes in share prices more
deeply by performing fundamental analysis based on financial ratios. By assessing the value of basic
elements that impact future stock prices and forecasting stock prices, fundamental analysis can be used
to estimate share prices (Husnan, 2009). Fundamental information is information related to the company
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condition in general, shown in financial statements that indicate company performance. These financial
statements can show some fundamental information such as financial ratios, cash flow, and other
performance measures associated with stock prices. Financial ratios can be classified into five categories:
Activity, Leverage, Liquidity, Profitability, and Valuation (Sutrisno, 2009). Through the analysis, the effect
of fundamental factors on stock prices and the correlation of these factors can be estimated.
Fundamental analysis involves analyzing economic and geopolitical factors that can influence the
value of a currency. Traders focus on factors such as interest rates, GDP growth, employment data,
inflation, central bank policies, and political stability. By understanding how these factors impact a
country’s economy, traders can make informed predictions about currency movements. For example, if a
country’s central bank raises interest rates, it may attract foreign investors, leading to an increase in the
value of its currency. On the other hand, political instability or weak economic data can cause a currency
to depreciate. Traders often follow economic calendars to stay updated on key economic events and news
Instead of focusing on the stock itself, fundamental analysts consider the firm that supports the
stock (Anbalagan & Maheswari, 2014). The data used by the fundamental analyst usually are
unstructured, which poses a difficult challenge. But infrequently, studies by (Zhang et al., 2011) have
shown it to be a reliable indicator of changes in stock prices. To forecast future stock prices, fundamental
analysis considers a variety of terrestrial and climatic factors, such as political data and natural or
unnatural disasters, as well as the firm's financial situation, board of directors, employees, and annual
report on the company's profits and losses (Tsai & Hsiao, 2010). Fundamental analysis, however, is not
appropriate for short-term stock-price change and is only helpful for long-term stock-price movement
(Khan, 2011). The fundamental analyst uses the openly accessible facts about the stock to perform an
analysis of stock price movement in three dimensions, concerning the economy, its industry, and the firm.
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They employed valuation models developed by Fundamental Analysts in the stock markets to
determine the fair (intrinsic) worth of the shares. These analysts assess the fair value of the firm based on
information about its past, present, and projected earnings (Bernard, 1994). It helps to discover
mispriced stocks (Kothari, 2001) and assigns intrinsic value to companies based on political and
economic facts, as well as historical and current financial records (Piotroski, 2000). Because the value of
the company is based on its ability to achieve cash flows and the uncertainty of those cash flows, the most
important principle of modern finance is that "any asset value equal to the present value of all expected
future cash flows discounted at the required return". Numerous strategies exist due to the intricacy and
significance of valuing common stock (Reilly & Brown, 2002). This type of analysis aids investors in
formulating investment plans that yield excess returns (Mahmoud & Sakr, 2012).
Also, the study (Chung & Kim, 2001) on the Hong Kong Stock Exchange sought to accomplish two
primary goals: The first involves creating a novel method to forecast equity's intrinsic value using
financial information from publicly available financial statements. The second objective is to predict the
stock's intrinsic value practically using the proposed model (which is achieved by objective one).
When creating successful basic investing strategies, fundamental elements like profitability,
solvency, liquidity, and operating efficiency are helpful. Additionally, there is a positive association
between these cumulative fundamental indicators and high-performing businesses. (Venkates, Madhu, &
Ganesh, 2012). (Nguyen, 2003) discovered that the three key components of fundamental analysis—cash
flows, outside funding, and dividends—can be used to both predict future stock returns and explain the
A mix of technical and fundamental analysis could be useful for predicting the prices of gold and
Bitcoin. In volatile markets like cryptocurrency markets, technical analysis can be useful in spotting
short-term trends and trading opportunities; on the other hand, fundamental research can offer valuable
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insights into the long-term drivers of value and performance of assets like gold. A more thorough grasp of
market dynamics and increased prediction accuracy may be obtained by combining aspects of both
strategies, depending on your investing goals, time horizon, and risk tolerance.
difficult. On the other hand, the emergence of machine learning has enabled researchers to automate
stock market prediction based on unstructured data, which in some cases has reported higher prediction
accuracy.
In terms of technological innovation, there have been three significant changes to the foreign
exchange market. The advent of electronic trading marked the first technological innovation in the
financial markets. The Internet followed in second place, and artificial intelligence (AI), which is primarily
utilized for exchange rate prediction, arrived third. Although the tests indicate that AI algorithms are
capable of producing precise short-term projections, they are also dependable in the long run. Long-term
forecasting is a challenge because it is more ambiguous. Future quotation modifications may be triggered
by new events or by the current events ceasing. Modern AI programs can be used to estimate currency
prices over a one-week period, provided that a set number of parameters remain constant.
AI supports the world's most actively traded markets by utilizing complex mathematical and
statistical models. In reality, artificial intelligence (AI) removes all geopolitical barriers and connects
disparate market segments, as demonstrated by the foreign currency market. AI is being used to facilitate
better communication amongst foreign exchange participants, including central banks, large commercial
banks, enterprises, and foreign exchange brokers. An important result of AI's application in foreign
exchange markets is that it makes the market more accessible, which raises market liquidity and, in turn,
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daily turnover. AI technology is used in machine learning, which enables computers to learn and develop
Recently, integrating machine learning (ML) techniques has become a powerful tool for
forecasting Forex trading. By using algorithms that are able to analyze large volumes of data, spot
patterns, and adjust to shifting market conditions, machine learning transforms the field of Forex
forecasting. ML models are capable of learning from historical data, making them well-suited for the non-
and more popular. In time series data, sequential dependencies can be effectively captured by Recurrent
Neural Networks (RNNs) and Long Short-Term Memory Networks (LSTMs). Predicting currency
movements can be facilitated by neural networks due to their ability to understand complex patterns and
relationships. it is well known that artificial neural networks (ANN) may predict stock market
movements using technical indicators in an abnormally profitable way (Fischer, T., & Krauss, C. 2018).
An artificial neural network (ANN) replicates the way the human brain learns by simulating the
brain's learning process. (Negnevitsky, M. 2005) They possess the ability to forecast and analyze. Using a
DL algorithm and blockchain data, (Senthuran, G., & Halgamuge, M. 2019) provided a way for projecting
cryptocurrency values. The ANN, as a DL technique, is used to recognize patterns or images by imitating
the visual processing of living organisms. CNNs are frequently employed to address issues with spatial
data, including picture data. Text and video analysis benefit more from the use of RNNs since they can
(Chandrinos, S. K., Sakkas, G., & Lagaros, N. D. 2018) proposed the Artificial Intelligence Risk
Management System (AIRMS) based on machine learning. AIRMS-ANN and AIRMS-DT, two risk
management structures that use neural networks and decision trees, respectively, were created. On
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average, both AIRMS-ANN and AIRMS-DT performed well, sometimes even surpassing one another. The
decision tree outperformed the neural network in terms of total return when the portfolios were
(Dash, R. 2018) proposed a model using a higher-order neural network forex prediction. To
forecast dynamic and nonlinear forex rates, they employed the Pi-Sigma neural network in conjunction
with a shuffling frog leap technique. (Ji, S., Kim, J., & Im, H. 2019) examined deep learning techniques for
Bitcoin price prediction, including deep neural networks (DNNs), convolutional neural networks (NNs),
and deep residual networks. They demonstrated that DNN-based models performed the best in
LSTM is a form of recurrent neural network (RNN) that learns long-term dependencies. provides
the opportunity to learn mapping functions between inputs and outputs and to directly handle order
across observations. Artificial Recurrent Neural Networks (ARNNs) in the domains of Deep Learning (DL)
and AI use LSTM. The approach is an ideal tool for financial asset price predictions since it can analyze
data sequences simultaneously and is helpful for classifying, analyzing, and producing forecasts on time
The ability of LSTMs to learn selectively by remembering and forgetting the necessary previous
data sets them apart from regular ANNs. By specifying a particular range of data for which the algorithm
is to make predictions and simultaneously determining the range and scope of data that the system
should ignore in order to prevent it from being destroyed by irrelevant data, this can be very helpful for
the financial assets trading system. An LSTM's advantage in financial price forecasting is its capacity to
forget data that the system designer determines is relevant and, thus, should be disregarded after a
certain amount of time in order to facilitate accurate predictions. Furthermore, (Ni, L., Li, Y., Wang, X.,
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Zhang, J., Yu, J., & Qi, C. 2019) suggested a model that employs the C-RNN technique to forecast Forex time
Sentiment is a process of determining the emotion behind a series of words whether that can be
attitudes, options, or emotions. The sentiments can be predicted by using the knowledge gained from
training datasets and using it to predict for testing datasets. Financial analysts have started using social
media more and more since it allows them to look at people's behavior in different situations rather than
simply raw facts. The idea is that “herd behavior” that exists in many life aspects also characterizes
investment behavior (Choijil et al., 2021), (Vo & Phan, 2018). Using a firm's sentiment on Twitter, (Tan &
Tas, 2020) examined the effects of social media on major international financial markets and discovered
a correlation between trading volume and returns and investor mood and Twitter activity. Using data
from Google Trends and Twitter, (Abraham et al., 2018) forecasted changes in the prices of Bitcoin and
Ethereum. They discovered that rather than tweet sentiment, tweet volume is a good indicator of price
direction.
Based on an extensive dataset of 84 million tweets and eight years' worth of stock data for 407
businesses from the S&P 500 index, (Liu et al., 2019) investigated whether social media had distinct
effects on stock performance. They discovered that whereas customers' negative opinion has a major
impact on stock prices, their good sentiment has little bearing on how well stocks perform. (Picasso et al.,
2019) created a prediction algorithm that can identify trends by combining technical analysis indicators
with investor sentiment gathered from news stories.(Wołk, 2020) contended that social media sentiment
and online search analytics tools like Google Trends play a major role in determining the volatility of
cryptocurrency prices. They also discovered that, despite declining cryptocurrency values, Twitter's
(Sohangir et al., 2018) applied a number of NN models to opinions expressed on the stock market
on Twitter and found that the convolutional neural network is the most effective model for predicting
sentiment from the dataset of stock tweets, while the deep learning model is useful for financial
sentiment analysis
(Kim et al., 2017) tried to predict Bitcoin’s trends by extracting keywords from Bitcoin-related
comments posted on online forums. However, misleading rumors and fake news have the power to
quickly change investors' emotions, therefore they should be carefully studied and can occasionally be
inaccurate.This is especially true for young or inexperienced investors who rely heavily on social media
It is recommended that the system designer confirm investor sentiments from many sources
before incorporating them into the trading system in order to mitigate that occurrence while still using
social media as a source of information. In addition to doing real trading and producing precise forecasts,
algorithms can also provide a range of back-testing outcomes that may be suitable for different investor
risk tolerance levels. AI tools can gather information from various sources from financial exchanges,
Pattern recognition and breakout signaling are two other significant ways that AI is advancing
trading. The system is configured to identify established patterns in this field of expertise and determine
when to enter or exit a trade based on those patterns. Time series prediction has also made use of natural
ML methods that make use of data analysis are effective for Forex forecasting. Fundamental and
technical analyses are frequently used in traditional Forex forecasting techniques. Exchange rate
fluctuations can be caused by a variety of circumstances. These elements are qualitative as well as
quantitative, so while some can be easily modeled, others may be challenging to measure. Normally, AI
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gadgets would enable investors to simulate both qualitative and quantitative aspects. Numerical
measurements can be made of quantitative factors that result from both macroeconomic and
microeconomic shifts. Comparatively speaking, qualitative characteristics are harder to quantify, yet they
nevertheless affect quotations. The combination of neural networks with expert systems has improved
prediction accuracy and performance. (Alexandridis et al., 2018; Yu, 2005; Nedovic, 2002; Guimaraes,
1994).
Compared to equities, the forex market is one of the most complex due to its high volatility,
nonlinearity, and irregularity (Ahmed et al., 2020). The Bitcoin exchange is more sensitive to economic
fundamentals and less susceptible to technological problems. The c-RNN version has much fewer errors
Methodology-3
Based on the comparison provided, determining the "best" method for market analysis depends
on various factors, including the trader's goals, time horizon, and expertise level. Technical analysis,
focusing on historical price data and chart patterns, is particularly effective for short-term trading due to
its immediate trading signals and ability to identify trends and market reversals. However, its predictive
power may decrease over time, and it does not account for broader economic or company-specific
factors.
On the other hand, fundamental analysis, centered around the intrinsic value of assets based on
economic indicators and company performance, is more suitable for long-term investment decisions. It
provides a deep understanding of underlying asset value and is useful for identifying mispriced securities
and long-term growth potential. Nonetheless, its reliance on complex and unstructured data makes it less
Machine learning and AI techniques offer a promising approach to market analysis by automating
and enhancing prediction models using both structured and unstructured data. These methods, such as
neural networks and decision trees, demonstrate high predictive accuracy, especially in handling
complex and nonlinear data. However, they require significant computational resources and expertise,
Contribution-4
The introduction sets the stage for exploring the role of artificial intelligence (AI) in predicting
movements in foreign exchange (forex) markets. It portrays the forex market as a complex and volatile
environment where predicting fluctuations is both challenging and rewarding. By contrasting forex
trading with cryptocurrency exchanges, the introduction emphasizes the reliability, security, and
regulation of forex trading. The significance of the forex market, with its massive daily trading volume, is
highlighted, along with its divided trading hours across major time zones. Furthermore, the introduction
underscores the challenges posed by geopolitical, economic, and psychological factors in forex trading. It
also introduces the relevance of AI in overcoming these challenges, leveraging its ability to analyze vast
amounts of data, learn from historical patterns, and adapt to changing market conditions. The paper's
cryptocurrency prices compared to traditional methods is outlined, setting the research agenda for the
subsequent sections. Finally, it presents key questions the study aims to address, focusing on the
5-Conclusion
In-depth discussion of forex trading and artificial intelligence's (AI) capacity to forecast market
movements is provided in this article. It talks about the difficulties caused by geopolitical, economic, and
psychological variables as well as the complexities of the foreign exchange market and how reliable it is
in comparison to cryptocurrency exchanges. The study emphasizes AI-driven methods as effective means
of enhancing prediction accuracy and evaluating enormous volumes of data. In predicting commodities
and cryptocurrency values, it contrasts conventional and AI-based approaches and comes to the
conclusion that AI techniques have potential to improve prediction accuracy, particularly in volatile
markets like cryptocurrencies. The use of artificial intelligence (AI) technologies into forex forecasting is
considered a noteworthy progression, providing traders with unparalleled perspectives and prospects
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