Stock Pattern Mining and Correspondence Analysis Based on Association Rules

DOI: 10.4236/jdaip.2017.53006   PDF   HTML   XML   648 Downloads   1,117 Views   Citations


In this paper, association rules were applied to mining patterns in stock K-line trend. The pattern which ordinary investors interested in is defined as T-RG (Three-Red Guards). In the mining process, we take the K-line in A-share markets as objects. Through the analysis, investors can select the appropriate point of purchase and selling point. With the help of T-RG, investors can better improve the chance of short-term investment success in A-share markets. In order to explore and validate the T-RG, the main contents of this paper include the following aspects: putting forward a method that judge the validity of rules based on confidence-lift; proposing the meta rule that corresponds to the pattern of T-RG; developing a computer program to extract the T-RG using MATLAB, which supports batch mining; leading fundamental factors into correspondence analysis with identification indexes; reminding the selected stocks, so as to verify the reliability of the identification indexes. According to the above research, something can be learned: In A-share markets, the higher the discriminant index value is, the less number of shares meeting the requirements is; the same discriminant index value, the stock proportion has difference among plates. Confidence P1, P2 and Lift are extremely related to the GC (General Capital), and Lift is extremely related to the Ind (Industry). In the GEM, confidence P1 of mid-cap is near [0.7,1], Lift is near (1,3), confidence P1 of the manufacturing industry is near [0.7,1].

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Yue, X. and Shi, F. (2017) Stock Pattern Mining and Correspondence Analysis Based on Association Rules. Journal of Data Analysis and Information Processing, 5, 77-86. doi: 10.4236/jdaip.2017.53006.

1. Introduction

Association rule mining is one of the most powerful tool for mining the potential value in big data era. Although the stock market changes constantly in China, but we still can use data mining method to find out valuable information in rich market data. The practical significance of research is to provide a reliable reference pattern and criteria, which investors can rely on to select buying and selling point. The theoretical significance is to propose improved identification indexes combined with the actual. Meanwhile, to develop the computer program for mining such patterns.

This paper aims to explore the K-line form, the research object is stock k-line data in Chinese A stock market. Due to the surge in the amount of data and practical demands of users, in the design of algorithms or indexes should fully understand the distribution characteristics of data sets. So, this paper puts forward the corresponding treatment methods combined with the objective.

2. Preliminaries

This section includes the association rules, K-line trend, meta rules and correspondence analysis.

2.1. Association Rules and Improvement

Association rules reflect the interdependence and relevance between a thing and other things, that is, a thing can be predicted by something else.

The basic model of association rules as logic implication is like shape X Y , I = { i 1 , i 2 , , i m } is a collection of items, X I , Y I , X Y = ϕ . X is called the antecedent of the rule, that is, the premise. Y is called the rule consequent results [1] . The support degree and confidence degree of association rules X Y are as Equation (1):

{ Support ( X Y ) = P ( X Y ) Confidence ( X Y ) = P ( Y | X ) (1)

When a set of transactions is given, many association rules can be generated according to the algorithm. And, only the association rules that satisfy the minimum specified support and confidence are valuable. According to preliminary exploration, the T-RG pattern is fewer, and the user is more interested in whether the relationship between X and Y is stable. So, this paper puts emphasis on meeting the confidence, without the support threshold settings. At the same time, in order to better describe the correlation between the two item sets, introducing the identification index called Lift to determine the effectiveness of the rules. Lift is defined as Equation (2):

L i f t ( X , Y ) = P ( Y | X ) P ( Y | X ¯ ) (2)

If the Lift = 1, illustrates the emergence of item sets X has no effect on Y; if greater than 1, indicating X has positive effects on Y; if less than 1, indicating inhibitory effect. In addition, the new variable β is used for describing application scope of the rules:

β = Conditionnumber Platenumber (3)

In summary, this paper puts forward the confidence-lift to judge the validity of rules.

2.2. K-Line and T-RG

In the mining process, we take the day K line as objects. Day K line represents the transactions of a trading day. When the closing price is greater than the opening price, K-line called the positive line. When fluctuation range of line below 2%, called the RG (Red Guards). N consecutive Red Guards called NRG (N Red Guards).

The pattern which ordinary investors interested in is defined as T-RG (Three-Red Guards), as follows: take day K line of any stock as the sample, the middle of the N-Red Guards as center (N default 3). Meanwhile, the number of trading day is denoted as i. When highest closing price in the previous k (k default 30) trading day greater than a certain magnitude relative to the center (decreasing amplitude r1) (r1 default 20%), followed by k, the highest closing price relative to the trading center is greater than a certain amplitude (amount of increase r2) (r2 default 10%). The sample pattern diagram shown in Figure 1.

For short-term investors, through the analysis of K line, can probably select the time of buying or selling. But the K-line combination are numerous, investors usually take a long time to find the combination, understand its meaning. This paper uses the computer program, mining pattern from the data point of view. In mining, do not have to distinguish any kinds of combination patterns of the Three-Red Guards.

2.3. Meta Rule of T-RG

Rules that users are interested in constitute a template, that is, meta rules. Con-

Figure 1. T-RG pattern diagram of K-line.

straint mining can not only improve the performance of data mining processes [2] , it also maximizes the value of mining results [3] . Formally, meta rules are like shapes P 1 P 2 P r Q 1 Q 2 Q s , among rule template, P i ( i = 1 , 2 , , r ) , Q j ( j = 1 , 2 , , s ) are predicate variable. The meta rule corresponding to T-RG is proposed as:

r 1 ( s t o c k , " 20 % " | R G ( s t o c k , " 3 " ) k ( s t o c k , " 30 " ) ) r 2 ( s t o c k , " 10 % " ) , [ p 1 , u p ] (4)

For the convenience of narration, the antecedent of meta rules here would be recorded as set X, the consequent denoted as set Y. Set X, Y is a sequence, represents the trend of time series, namely element model [4] . Based on the meta rule, the Three Red Guards is the base of affairs, so as to clear the scope of the transaction database and mining parameters.

Index definitions such as Table 1. In this paper, Inf means infinity, the denominator is 0. NaN means not a number, that is, the numerator and denominator is 0 or NaN, or one of them is NaN. Z is such as Y, position may be different. Besides, a, b, c and d are positive integer.

2.4. Correspondence Analysis of Fundamental Factors and Identification Indexes

In order to further understand the background information related to the rules, and to use correspondence analysis to learn the relationship. Different values of attributes variables can be drawn in a two-dimensional diagram, thus the relationship could be described in the intuitive and concise way [5] . This paper introduces the fundamental factors such as GC (General Capital) and Ind (Industry).

Obviousness, P1, P2, Lift and GC are numerical variables, Ind is character variable. For the correspondence analysis, these variables need to be discretized. Real discrete process is divide continuous attribute value into a number of relatively independent intervals, when the information loss is minimized [6] . In this

Table 1. Index definition.

paper, a supervised method is used, which considers the information of class attributes in the discrete process.

1) Discrete confidence P1, P2: confidence is the representative of the reliability of rules. According to the user specified threshold, it can be divided into the following four confidence intervals (see Table 2).

2) Discrete Lift and GC: the Lift itself can be divided into three levels, which is less than 1, equal to 1, more than 1. Combined with mining results, the Lift can be separated into five levels as follows. According to the existing criteria, 800 million to 5 billion shares of the stock is called market share; 250 million shares to 800 million shares of the stock is called disk shares; 100 million shares to 250 million shares of the stock is called small cap stocks; 100 million shares of stock is called micro shares, separated into following four categories (see Table 3).

3. Discussion

Including analysis of mining results and correspondence analysis results.

3.1. Data Sources

The purpose of this study is to mining stock K-line pattern, variables include opening and closing prices. Using the quantization interface MATLAB to get K-line data in A share market. Data comes from Wind financial information terminal.

In order to compare the stock of different plates, plate data are obtained separately. Concretely, 559 shares of the gem, from December 2, 2011 to December 2, 2016. 1161 shares of Shanghai A shares, from December 13, 2011 to

Table 2. Discrete confidence.

Table 3. The dispersion of the Lift and the GC.

December 13, 2016. 1846 shares of Shenzhen A shares, from December 13, 2011 to December 13, 2016. If the index value of the trading day I is empty, it will be the same as the index value of the trading day (i-1).

3.2. Mining Results Analysis

1) Comparative analysis among plates

In Table 4, β indicates application scope of the rules. After horizontal and vertical analysis, shows that rules of different index range have different meanings. The same rules in different plates have difference proportion. For the specified conditions, the more stringent requirements are, the less number of shares is. Three plates have the same law.

2) Sample analysis of individual stocks

In Table 5, obviousness, some stocks have high confidence, but frequency of item sets X and Y is low. So, in order to judge the validity of rules, getting rid of contingency, it’s necessary to combine with other index, such as Lift. When the confidence level is 100%, most Lift is greater than 1. When the Lift is high, confidence will not be low. In some degree, the Lift is more important than confidence.

3.3. Correspondence Results Analysis

1) Comparative analysis among plates

Learn from Table 6, we can know that P1, P2 and up are highly related to the GC, and has nothing to do with plates. In addition to the Shanghai A shares, P1 has significant correlation with Ind. In addition to the GEM, P2 has significant correlation with Ind. The method is similar, so we could take the GEM as an example to make a detailed interpretation of the results. The sample pattern diagram shown in Figure 2.

2) General Capital and P1

Investigate the states of the two variables, we can see the confidence of the mid cap stocks is generally higher, closing to the interval [ 0.7 , 1 ] . Compared

Table 4. Comparative analysis among plates.

Table 5. Sample analysis of individual stocks.

Figure 2. Two dimensional chart of general capital and P1.

Table 6. Comparative analysis among plates.

with the small cap and large cap stocks, the reliability is higher. The micro is close to NaN, has no significant features.

3) Industry and P1

Investigate the states of the two variables, the confidence of H, L is close to the interval [ 0.7 , 1 ] . The confidence of F, M are close to the interval [ 0.5 , 0.7 ) . The confidence of E, K is small, closing to the interval [ 0 , 0.5 ) and NaN. The rest of the industry have no significant features, as shown in Figure 3.

4) Lift and General Capital

Investigate the states of the two variables, the Lift of the mid and large cap stocks is close to the interval ( 1 , 3 ) . The Lift of micro shares is close to NaN. The Lift of small cap stocks has no obvious characteristics, as shown in Figure 4.

Figure 3. Two-dimensional graph of Industry and P1.

Figure 4. Two-dimensional chart of the Lift and general capital.

3.4. Reliability Verification

In order to verify the validity of the identification index, we have to exam the performance of T-RG of the selected stocks in recent years. Selecting the part of the stocks depended on index value. The results can illustrate the validity of identification index. Meanwhile, the process can also select stocks of well performance in T-RG.

3.4.1. Stock Selection

Add new index r to filter stocks, so as to ensure that the selected stock is more likely to appear T-RG pattern in the short term.

r = P 2 s u m S H (5)

The index shows that when the three red guards appeared, the frequency of T-RG pattern. Data dates from March 3, 2016 to March 3, 2017. Through the mining and analysis above, the following conditions are given:

1) When P 1 = 100 % & L i f t 2 I n f & r > 0.16 & P 2 s u m > 1 , screened stocks are as Table 7 shown.

2) When P 1 = 100 % & L i f t 2 I n f & r > 0.16 & S H < 12 , Shanghai A shares are screened as follows: 601020.SH, 603227.SH.

3.4.2. Verification Results

Using the previous core program and mining parameters to mine the validation data, the verification result is shown in Table 8.

From Table 8, we can see that the confidence of 300367.SZ, 002517.SZ and 002776.SZ cannot meet user requirements. But, the confidence of these three stocks are 1 when selected. In this case, it shows that rule confidence is related with the time. In addition to the above 3 stocks, 9 stocks in the degree of confidence was 1. For these stocks, the T-RG pattern is very stable. Even in different periods of time, these stocks also have good performance, not affected by other factors. The Lift was greater than or equal to 3, indicating that the X contact closely with Y from first to last. The X strongly promote the consequent Y.

To sum up, selecting stock depend on the criteria is still reliable. Through this research, we can also obtain 9 stocks, which has good performance on T-RG. Meanwhile, 4 stocks that in gem belong to manufacturing, in line with the correspondence analysis results.

Table 7. Filter stock code.

Table 8. Verification results.

4. Conclusion

This study aims at individual share. If mining results of the stock meet the user’s specified standard, it can become the major concern. Investors can choose buying and selling point according to the T-RG. In theory, confidence-lift is proposed to judge the validity of the rules. The application of the research results is combined with the user’s needs.

Conflicts of Interest

The authors declare no conflicts of interest.


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