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Trading & Investing System Development:Adapting the 10 O’Clock Bulls and TurtleTrading Strategies for AutomatedDevelopmentAN INTERACTIVE QUALIFYING PROJECT REPORT SUBMITTED TO THE FACULTY OFWORCESTER POLYTECHNIC INSTITUE IN PARTIAL FUFILLMENT OF THEREQUIREMENTS OF THE DEGREE OF BACHELOR OF SCIENCEAUTHORED BY:CARLOS J. BARCELOSJUSTIN A. MYERSONDATE:28 MAY 2017REPORT SUBMITTED TO:MICHAEL J. RADZICKI, PH.D.1
AcknowledgementsThank you to Professor Radzicki for teaching us the unique lingo of stock trading and guiding us throughthis project.Thank you to TD Ameritrade for Figure 7, Figure 8 and Figure 9.Thank you to Investopedia.com for being available to answer our most simple of questions.Thank you to scrutify.com on May 6 2017 for Figure 14.Thank you to The St. Louis Fed’s FRED on May 18, 2017 for Figure 15.2
Table of ContentsAcknowledgements . 2Table of Figures . 51. Introduction . 62. Trading and Investing . 7Trading vs. Investing . 7Beating the Market . 7Asset Classes . 7Stock Exchanges and the Market . 83. Trading Systems . 9Trading Platforms. 9Trading Logistics. 10Trading Metrics . 12Personalized Objectives . 13The Benefits of Automated Trading . 13Fundamental Law of Trading Systems . 14Trading Systems . 14Stock Screening . 174. Optimizing and Analysizing Trading Systems . 18Avoiding Overfitting . 18Optimizing with a Portfolio . 18Training Data and Testing Data . 18Avoiding Algorithmic Bias with Walk-Forward Analysis . 18System Quality . 19Monte Carlo Analysis . 195. Literature Review . 20Trading as a Business . 2010 O’Clock Bulls . 21Turtle Trading . 236. 10 O’Clock Bulls. 25Choosing Stocks . 25Bar Lengths . 25Defining Breakouts and Breakdowns . 253
The Rules . 257. Turtle Trading . 28The Original Turtles . 28Algorithmically Turtle Trading Equities . 28Optimization . 32Analysis . 348. System of Systems . 38Aggregated Reports . 38System Allocations . 399. Summary and Conclusions . 40Summary . 40Conclusion . 40Next Steps . 40References . 41Appendix A: Calculations . 42Turtle Trading System . 42Appendix B: Easy Language Code for 10 O’Clock Bulls Trading System . 43Appendix C: Easy Language Code For Turtles Trading System . 45Long-Only Strategy. 45Short-Only Strategy. 464
Table of FiguresFigure 1: Support and resistance . 10Figure 2: Support and resistance breakout . 10Figure 3: TradeStation Performance Summary . 13Figure 4: TradeStation Trade Analysis . 13Figure 5: Cross-over filter. 16Figure 6: Explanation of algorithmic bias . 18Figure 7: Bulls Support and Resistance . 21Figure 8: Bulls Opening Range . 22Figure 9: Bulls Breakout and Breakdown . 22Figure 10: Bulls breakdown of trades . 26Figure 11: Downtrending Chart. 29Figure 12: Choppy Chart . 29Figure 13: Uptrending Chart . 29Figure 14: Trending stocks cloud . 29Figure 15: Gross domestic product from 2002-2016 . 32Figure 16: Turtles maximum adverse excursion. 34Figure 17: Performance Summary - Turtles Long Walk-Forward . 35Figure 18: Performance Summary - Turtles Short Back-tested . 35Figure 19: Performance Summary - Turtles Long Back-tested . 35Figure 20: Performance Summary - Turtles Long Walk-Forward . 36Figure 21: Turtles Monte Carlo Analysis . 37Figure 22: Bulls Equity Curve . 38Figure 23: Turtles Equity Curve . 38Figure 24: Aggregated Equity Curve . 385
1. IntroductionThe purpose of this Interactive Qualifying Project is to understand the financial market and learn thetechniques to build a personalized trading system. Increasingly, it is becoming necessary for individualsto take a certain amount of control of their financial futures. It is important that these individuals areknowledgeable and are able to do so with a scientific approach that will yield the desired results whileminimizing risk. Attempting to invest money into the market without having a working knowledge of allof the elements of the financial world is dangerous, especially with marketing campaigns claiming “it’sso easy a baby can do it.” This Interactive Qualifying Project will outline the specifics of two tradingsystems to give the reader a working knowledge of some of the important parts of the investmentworld.In the area of trading system development, there are many theories and practices of building anddeploying complete trading systems. Many of these systems can be purchased through brokerages, butthis method does not come with the personalization required to fit the objective of the user of thetrading system. This Interactive Qualifying Project recognizes the work that has already been made inthe field of personalized trading systems and uses two famous examples of trading strategies, the 10O’Clock Bulls and the Turtle Trading strategies, as the groundwork for two new trading systems. Theresearch completed before adapting each strategy to an automated environment includes literaturesuch as Trading as a Business, rules of successfully automating trading strategies, and explanatorymaterial on both the 10 O’Clock Bulls and Turtle Trading strategies as they were originally developed.This Interactive Qualifying Projects takes the work done in the past and adapts it to fit the personalitiesof the two authors. At large, this includes the matter of converting a conventional for an automatedtrading environment. More specifically, Justin took the 10 O’Clock Bulls sy
and the Turtle Trading systems did cooperate to create more realistic trading scenario but were not so compatible as to make the system of systems profitable enough to trade full time. 7 2. Trading and Investing As individuals become increasingly involved in managing their money, many of them choose to make their own investments in the market. An ordinary citizen taking part in the market is .
