The Red Queen's Trap: Limits of Deep Evolution in High-Frequency Trading
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arXiv
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| Format: | Preprint |
| Veröffentlicht: |
2025
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| _version_ | 1866909968318332928 |
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| author | Chen, Yijia |
| author_facet | Chen, Yijia |
| contents | The integration of Deep Reinforcement Learning (DRL) and Evolutionary Computation (EC) is frequently hypothesized to be the "Holy Grail" of algorithmic trading, promising systems that adapt autonomously to non-stationary market regimes. This paper presents a rigorous post-mortem analysis of "Galaxy Empire," a hybrid framework coupling LSTM/Transformer-based perception with a genetic "Time-is-Life" survival mechanism. Deploying a population of 500 autonomous agents in a high-frequency cryptocurrency environment, we observed a catastrophic divergence between training metrics (Validation APY $>300\%$) and live performance (Capital Decay $>70\%$). We deconstruct this failure through a multi-disciplinary lens, identifying three critical failure modes: the overfitting of \textit{Aleatoric Uncertainty} in low-entropy time-series, the \textit{Survivor Bias} inherent in evolutionary selection under high variance, and the mathematical impossibility of overcoming microstructure friction without order-flow data. Our findings provide empirical evidence that increasing model complexity in the absence of information asymmetry exacerbates systemic fragility. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2512_15732 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | The Red Queen's Trap: Limits of Deep Evolution in High-Frequency Trading Chen, Yijia Trading and Market Microstructure Machine Learning Neural and Evolutionary Computing Computational Finance The integration of Deep Reinforcement Learning (DRL) and Evolutionary Computation (EC) is frequently hypothesized to be the "Holy Grail" of algorithmic trading, promising systems that adapt autonomously to non-stationary market regimes. This paper presents a rigorous post-mortem analysis of "Galaxy Empire," a hybrid framework coupling LSTM/Transformer-based perception with a genetic "Time-is-Life" survival mechanism. Deploying a population of 500 autonomous agents in a high-frequency cryptocurrency environment, we observed a catastrophic divergence between training metrics (Validation APY $>300\%$) and live performance (Capital Decay $>70\%$). We deconstruct this failure through a multi-disciplinary lens, identifying three critical failure modes: the overfitting of \textit{Aleatoric Uncertainty} in low-entropy time-series, the \textit{Survivor Bias} inherent in evolutionary selection under high variance, and the mathematical impossibility of overcoming microstructure friction without order-flow data. Our findings provide empirical evidence that increasing model complexity in the absence of information asymmetry exacerbates systemic fragility. |
| title | The Red Queen's Trap: Limits of Deep Evolution in High-Frequency Trading |
| topic | Trading and Market Microstructure Machine Learning Neural and Evolutionary Computing Computational Finance |
| url | https://arxiv.org/abs/2512.15732 |