A neural network is a series of algorithms that endeavors to recognize underlying relationships in a set of data through a process that mimics the way the human brain operates. In this sense, neural networks refer to systems of neurons, either organic or artificial in nature. Neural networks can adapt to changing input; so the network generates the best possible result without needing to redesign the output criteria. The concept of neural networks, which has its roots in artificial intelligence, is swiftly gaining popularity in the development of trading systems.
Neural networks are broadly used, with applications for financial operations, enterprise planning, trading, business analytics and product maintenance. Neural networks have also gained widespread adoption in business applications such as forecasting and marketing research solutions, fraud detection and risk assessment.
A neural network evaluates price data and unearths opportunities for making trade decisions based on the data analysis. The networks can distinguish subtle nonlinear interdependencies and patterns other methods of technical analysis cannot. According to research, the accuracy of neural networks in making price predictions for stocks differs. Some models predict the correct stock prices 50 to 60 percent of the time while others are accurate in 70 percent of all instances. Some have posited that a 10 percent improvement in efficiency is all an investor can ask for from a neural network.1