Optimized Automated Stock Trading using DQN and Double DQN

Stock Portfolio management involves managing the buying, holding and selling decisions for the various stocks in the portfolio. There has been work where Reinforcement Learning (RL) based actor-critic methods like Deep Direct Policy Gradient (DDPG) have been used for asset allocation problems. Here an attempt has been made to use solely critic-based value function methods like Deep Q-network (DQN) and Double DQN for estimating Q-values of market actions. Then, an optimized portfolio management algorithm designed to balance trades across a basket of stocks is designed. Five stocks are chosen of different price ranges from NYSE and NASDAQ stock exchanges. The average cumulative percentage returns provided by DQN was 55% on testing data with an average Maximum Drawdown (MDD) of 2.5%. The same with Double DQN was 71% on testing data with an average MDD of 2.83%. These results were significantly better than the case when a traditional Buy and Hold strategy was to be employed.