I have been asked to post a few words about novelty filtering stock market data. This can also of course be applied to any other system, including, but not limited to forex data and other financial time series.
What anti-Hebbian novelty filters can do for you:
- Detect previously unseen trading patterns
- Give a quantitative measure of how much this new pattern differs from old trading patterns
What anti-Hebbian novelty filters can’t do for you:
- Predict what consequence (if any) the new trading pattern will have on for instance the stock price
- Give you the direction of or type of change
So why would you want to use novelty filters if they can’t tell you the consequence of the change?
It’s simple: You use neural networks and other technology to try to model the market. You don’t throw a dice or flip a coin.
When the market exhibits behaviour it hasn’t shown earlier and you choose to trade, then you are just picking random actions. All predictive models are based on the assumption that there is an analyzable pattern. You find this pattern by looking at historical data.
If the market is behaving in a way no represented by the historical data, then your model is invalid.
Let’s look at a practical example, and I’ll then show you how to do it in Synapse.

What we have here is the output of an anti-Hebbian filter (top graph) and the closing price of the Microsoft shares. As you can see, around sample 209-210, the novelty filter detected something was up - three days before the stock went down significantly (on April 27). This would have been a very good signal to get out of the market.
Let’s take a closer look on how this is done in Synapse and what it means:
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