Transcription
Trading Strategies Introduction
Trading Loop
Trading Loop
Trading Loop
Trading Loop
Three Strategies1. Mean Reversionrobinhood.com2. Momentumtradingview.com3. Pairs TradingBudish, E., Cramton, P., & Shim,J. (2015). The high-frequencytrading arms race: Frequentbatch auctions as a marketdesign response.
Mean Reversion StrategyAlgorithm Datayt3. Sell when yt (1 d)mtStock Pricemt Moving AverageAlgorithm ParameterswMoving window lengthdPrice threshold (%)2. Buy when yt (1 – d)mt1. Calculate moving average mt ofstock price at a time t with themoving window length, w.robinhood.com
Simple Moving Averagetime (t)price (yt)t-4 311.23robinhood.com
Simple Moving Averagetime (t)price (yt)t-4 311.23t-3 316.50robinhood.com
Simple Moving Averagetime (t)price (yt)t-4 311.23t-3 316.50t-2 318.27robinhood.com
Simple Moving Averagetime (t)price (yt)t-4 311.23t-3 316.50t-2 318.27t-1 320.47robinhood.com
Simple Moving Averagetime (t)price (yt)t-4 311.23t-3 316.50t-2 318.27t-1 320.47t 315.69robinhood.com
Simple Moving AverageAAPL stock price the last 5 daysExample: 5 day moving averagetime (t)price (yt)t-4 311.23t-3 316.50t-2 318.27t-1 320.47t 315.69
Pairs TradingIdea:Companies that make similarproducts should have verysimilar changes in stock price.For example Coke and Pepsi.Source (madison.com)
Pairs TradingPairs Trading Strategy:When Pepsi drops more than Coke Buy Pepsi stock and Sell Coke stock.When Coke drops more than Pepsi Source (madison.com)Buy Coke stock and Sell Pepsi stock.
Tradingview.comAlgorithm DataAlgorithm Parametersyt Differenced Stock Price wmt Moving AveragedMoving window lengthPrice threshold (%)3. Sell KO, Buy PEP when yt (1 d)mt1. Calculate moving average mt ofstock price at a time t with themoving window length, w.2. Buy KO, Sell PEP when yt (1 – d)mtTradingview.com
Pairs Trading - MacroSimilarOpportunitiesexist acrossentire “sectors” https://elite.finviz.com/map.ashx?t sec&st w52YTD performance across sectorsBanks andInsuranceRestaurants andTravel
Momentum ModelIdea:Follow the volatility/trend that atime series may exhibit.Sometimes this volatility canoccur as a result of afundamental change in abusiness or it’s environment.Such changes could imply astock dramatically mis-priced.TeslaTradingview.com
ExamplesZoomBeyond MeatTradingview.com
Momentum StrategyRate of ChangeNumber of periods to look backTradingview.com
Algorithm DataAlgorithm ParametersstStock Priceroct Rate of ChangenROC lookback periodsdROC threshold1. Calculate rate of change roct ofstock price at a time t with thelookback period, n.2. Buy when roct movesabove threshold d.Tradingview.com
Trading Algorithms in CloudEx
Momentum 3. Pairs Trading robinhood.com tradingview.com Budish, E., Cramton, P., & Shim, J. (2015). The high -frequency trading arms race: Frequent batch auctions as a market design response. Mean Reversion Strategy . Pairs Trading Pairs T
