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.

INTRODUCTION: This algorithmic trading model examines a simple trend-following strategy for a stock. The model enters a position when the price reaches either the highest or the lowest points for the last X number of days. The model will exit the trade when the stock’s fast and slow moving-average lines cross each other.

In addition to the stock price, the models will also use the trading volume indicator to confirm the buy/sell signal further. Finally, the strategy will also incorporate a fixed holding window. The system will exit the position when the holding window reaches the maximum window size.

From iteration Take1, we set up the models using a trend window size for long trades only. The window size varied from 10 to 50 trading days at a 5-day increment. We used 20 to 40 days for the fast-moving average and 50 to 80 days for the slow-moving average. The models also incorporated a volume indicator with a fixed window size of 10 days to confirm the buy/sell signal. Furthermore, we did not limit the holding period by setting the maximum holding period to 999 days for this iteration.

From iteration Take2, we set up the models using a trend window size for short trades only. The window size varied from 10 to 50 trading days at a 5-day increment. We used 20 to 40 days for the fast-moving average and 50 to 80 days for the slow-moving average. The models also incorporated a volume indicator with a fixed window size of 10 days to confirm the buy/sell signal. Furthermore, we did not limit the holding period by setting the maximum holding period to 999 days for this iteration.

In this Take3 iteration, we will set up the models using a trend window size for both long and short trades. The window size will vary from 10 to 50 trading days at a 5-day increment. We will use 20 to 40 days for the fast-moving average and 50 to 80 days for the slow-moving average. The models will also incorporate a volume indicator with a fixed window size of 10 days to confirm the buy/sell signal. Furthermore, we will not limit the holding period by setting the maximum holding period to 999 days for this iteration.

ANALYSIS: From iteration Take1, we analyzed the stock prices for Apple Inc. (AAPL) between January 1, 2018, and February 19, 2021. The top trading model produced a profit of 92.77 dollars per share. The buy-and-hold approach yielded a gain of 87.70 dollars per share.

From iteration Take2, we analyzed the stock prices for Apple Inc. (AAPL) between January 1, 2018, and February 19, 2021. The top trading model produced a loss of 3.57 dollars per share. The buy-and-hold approach yielded a gain of 87.70 dollars per share.

In this Take3 iteration, we analyzed the stock prices for Apple Inc. (AAPL) between January 1, 2018, and February 19, 2021. The top trading model produced a profit of 67.40 dollars per share. The buy-and-hold approach yielded a gain of 87.70 dollars per share.

CONCLUSION: For the stock of AAPL during the modeling time frame, the long-and-short trading strategy did not produce a better return than the buy-and-hold approach. However, 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.