An explainable deep learning approach for stock market trend prediction

Journal article, 2024

Given the intricate nature of stock forecasting as well as the inherent risks and uncertainties, analysis of market trends is necessary to capitalize on optimal investment opportunities for profit maximization and timely disinvestment for loss minimization. In this work, we propose a deep learning model for predicting five distinct stock market trends: upward, downward, double top, rounded bottom, and rounded top. The proposed model surpasses common benchmarks, including support vector machine, random forest, and logistic regression, achieving an average accuracy of 94.9%, compared to 85.7% for random forest, 60.07% for support vector machine, and 52.45% for logistic regression. Furthermore the proposed model excels in F1-score, with a 94.85% performance, compared to 77.95% for random forest, 21.02% for support vector machine and 46.23% for logistic regression, across four real world diverse datasets. Additionally, we employ explainable AI (XAI) techniques, SHAP and LIME, to enhance interpretability, enabling stakeholders to understand the key factors driving predictions. The SHAP analysis reveals the top 10 most important/influential features, enabling feature reduction while maintaining performance. Interestingly, while accuracy slightly decreases with top 10 features, precision, recall, and F1-score improve, suggesting a trade-off between comprehensiveness and performance. These results demonstrate the potential for practical application in financial decision-making, providing a balance between interpretability and predictive power that can support investors in risk management and strategic planning.