A brokerage account is an investment account that allows you to buy and sell a variety of investments, such as stocks and ETFs, that we will focus on. A stock is a type of investment that represents an ownership share in a company, Bonds – Unlike stocks, bonds don’t give you ownership rights. They represent a loan from the buyer (you) to the issuer of the bond. ETFs or “exchange-traded funds” are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. While a traditional ETF typically tracks the securities in its underlying index on a one-to-one basis, a leveraged ETF may aim for a 2:1 or 3:1 ratio.
Reinforcement learning (RL) is a machine learning technique that focuses on training an algorithm following the cut-and-try approach. This project’s goal was to Use of RL methods to achieve a portfolio strategy, optimizing a risk adjusted objective in focus of using leveraged assets. The solution shown here uses two types of ETF’s, UPRO and TMF and balances them using an RL agent to determine the best way to balance them. The result was, that the best way in terms of profit and stability in the long run was 60/40 (UPRO/TMF), which is a way studied in the past and which we used as a baseline.