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Trading Strategies Introduction Trading Loop Trading Loop Trading - - PowerPoint PPT Presentation
Trading Strategies Introduction Trading Loop Trading Loop Trading - - PowerPoint PPT Presentation
Trading Strategies Introduction Trading Loop Trading Loop Trading Loop Trading Loop Three Strategies 1. Mean Reversion 2. Momentum 3. Pairs Trading Budish, E., Cramton, P ., & Shim, J. (2015). The high-frequency trading arms race:
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Trading Loop
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Trading Loop
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Trading Loop
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Three Strategies
- 2. Momentum
- 1. Mean Reversion
- 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.
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Mean Reversion Strategy
robinhood.com
- 3. Sell when yt > (1+d)mt
Moving Average Stock Price yt mt
Algorithm Data Algorithm Parameters
w Moving window length d Price threshold (%)
- 1. Calculate moving average mt of
stock price at a time t with the moving window length, w.
- 2. Buy when yt < (1 – d)mt
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Simple Moving Average
robinhood.com
time (t) price (yt) t - 4 $311.23
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Simple Moving Average
robinhood.com
time (t) price (yt) t - 4 $311.23 t - 3 $316.50
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Simple Moving Average
robinhood.com
time (t) price (yt) t - 4 $311.23 t - 3 $316.50 t - 2 $318.27
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Simple Moving Average
robinhood.com
time (t) price (yt) t - 4 $311.23 t - 3 $316.50 t - 2 $318.27 t - 1 $320.47
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Simple Moving Average
robinhood.com
time (t) price (yt) t - 4 $311.23 t - 3 $316.50 t - 2 $318.27 t - 1 $320.47 t $315.69
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Simple Moving Average
Example: 5 day moving average
AAPL stock price the last 5 days
time (t) price (yt) t - 4 $311.23 t - 3 $316.50 t - 2 $318.27 t - 1 $320.47 t $315.69
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Pairs Trading
Idea: Companies that make similar products should have very similar changes in stock price. For example Coke and Pepsi.
Source (madison.com)
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Pairs Trading
Pairs Trading Strategy: When Pepsi drops more than Coke
- Buy Pepsi stock and Sell Coke stock.
When Coke drops more than Pepsi
- Buy Coke stock and Sell Pepsi stock.
Source (madison.com)
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Tradingview.com
Moving Average Differenced Stock Price yt mt
Algorithm Data Algorithm Parameters
w Moving window length d Price threshold (%)
- 1. Calculate moving average mt of
stock price at a time t with the moving window length, w.
- 2. Buy KO, Sell PEP when yt < (1 – d)mt
- 3. Sell KO, Buy PEP when yt > (1+d)mt
Tradingview.com
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Pairs Trading - Macro
Similar Opportunities exist across entire “sectors”
- Banks and
Insurance
- Restaurants and
Travel
https://elite.finviz.com/map.ashx?t=sec&st=w52 YTD performance across sectors
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Momentum Model
Idea:
Follow the volatility/trend that a time series may exhibit. Sometimes this volatility can
- ccur as a result of a
fundamental change in a business or it’s environment. Such changes could imply a stock dramatically mis-priced.
Tesla
Tradingview.com
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Examples
Zoom Beyond Meat
Tradingview.com
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Momentum Strategy
Rate of Change
Tradingview.com
Number of periods to look back
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Tradingview.com
Algorithm Data
Stock Price st
Algorithm Parameters
n ROC lookback periods
- 1. Calculate rate of change roct of
stock price at a time t with the lookback period, n.
Rate of Change roct d ROC threshold
- 2. Buy when roct moves
above threshold d.
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