Algorithmic Trading Model for Naïve Momentum Strategy with Volume Indicator Using Python

NOTE: This script is for learning purposes only and does not constitute a recommendation for buying or selling any stock mentioned in this script.

SUMMARY: This project aims to construct and test an algorithmic trading model and document the end-to-end steps using a template. We will test trading models with the naïve momentum strategy.

INTRODUCTION: This algorithmic trading model examines a simplistic naïve momentum strategy in comparison to a buy-and-hold approach. The plan goes long (buys) on the stock when the daily closing price improves from the previous day for a pre-defined consecutive number of days. Conversely, we will exit the position when the daily price declines for the same successive number of days. Furthermore, we will use the trading volumes to confirm the buy and sell signals by comparing them to the 10-day moving average.

ANALYSIS: From this iteration, we analyzed the stock prices for Apple Inc. (AAPL) between January 1, 2019, and November 27, 2020. The trading model produced a profit of 35.78 dollars per share. The buy-and-hold approach yielded a gain of 77.85 dollars per share.

CONCLUSION: For the stock of AAPL during the modeling time frame, the trading strategy did not produce a better return than the buy-and-hold approach. We should consider modeling this stock further by experimenting with more variations of the strategy.

Dataset ML Model: Time series analysis with numerical attributes

Dataset Used: Quandl

The HTML formatted report can be found here on GitHub.