Harnessing LSTM Networks for Profitable Trading Strategies with Technical Indicators

Janelle Turing
5 min readNov 25, 2023

Traders are always on the lookout for an edge strategy that can outperform the market. With the advent of machine learning, particularly Long Short-Term Memory networks (LSTM), we have powerful tools at our disposal to model and predict market movements. In this tutorial, we will delve into the realm of algorithmic trading by creating a trading strategy using technical indicators and LSTM networks. We will use Python, a versatile programming language, to build our model and backtest our strategy.

Cover Image
Photo by Gabrielle Henderson on Unsplash

Before we dive into the code, let’s understand the key components of our strategy:

  • Technical Indicators: These are heuristic or mathematical calculations based on the price, volume, or open interest of a security or contract used by traders who follow technical analysis.
  • LSTM Networks: A type of recurrent neural network capable of learning order dependence in sequence prediction problems.

By combining these elements, we aim to develop a trading strategy that can predict future price movements of financial assets and make informed trading decisions.

Setting Up the Environment

First, we need to set up our Python environment with the necessary libraries. Ensure you have Python installed on your system and then install the following packages using pip:

pip install yfinance numpy pandas matplotlib sklearn tensorflow

Importing Libraries

Let’s begin by importing the required libraries.

import yfinance as yf
import numpy as np
import pandas as pd
import matplotlib.pyplot as plt
from sklearn.preprocessing import MinMaxScaler
from tensorflow.keras.models import Sequential
from tensorflow.keras.layers import LSTM, Dense

Downloading Financial Data

We will use the yfinance library to download historical stock data. For this tutorial, let's focus on JPMorgan Chase & Co. (JPM).

# Download historical data for JPM
ticker = 'JPM'
data = yf.download(ticker, start='2020-01-01', end='2023-11-01')

Exploring the Data

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Janelle Turing

Your AI & Python guide on Medium. 🚀📈 | Discover the Power of AI, ML, and Deep Learning | Check out my articles for a fun tech journey – see you there! 🚀🔍😄