Word count 2500 words – please use APA referencing style for references
Details of the task
Objective
In CW1, you have been asked to prepare a report for the manager of a new hedge fund detailing at least two types of technical indicators. CW2 is mainly about improving such technical indicators and back testing your trading idea with the historical data. Using one of the following three asset classes, i) Stocks which can include indices, ii) Currencies or iii) Commodities, you’ll be asked to test a short term investment strategy for a single or portfolio of at least 3 assets. In either case, use an initial capital of $10 million or equivalent in another currency.
Questions
1. [10 pts] Write an executive summary about backtesting with a discussion on potential drawbacks and importance of this approach for algorithmic trading.
2. [20 pts] Explain your strategy and technical indicator in details. The coursework should encompass the selection and rationale behind the strategy. Please note that you are required to use of the indicators covered during the lectures.
3. [10 pts] Describe your daily dataset, which you should obtain from sources such Bloomberg, or Capital IQ, and explain any pre- processing you have done and how you have cleaned it.
4. [10 pts] Describe your steps how to backtest the strategy over a previous period of last 12 months.
5. [25 pts] Present your findings on backtesting which must include an estimate of trading costs. Note that you will be using past 12 months of daily data for backtesting but your strategy must also be tested on a forthcoming daily or weekly period (out-of-sample test) in April or May 2018. Demonstrate how you have tried to optimise the strategy for performance and why you believe that the strategy is not over-fitted.
6. [15 pts] Compare your chosen indicator with another similar indicator. Show how you have tried to minimise trading costs. Present your portfolio (or single asset) returns.
7. [10 pts] Give a detailed assessment of the performance of the strategy. Here, plot and show time periods where your strategy is profitable. What do you observe? Explain.
8. [Bonus — Harder — 0 points] Turn your back-testing into a real- time algo strategy which reads data from Yahoo API and makes decision in real-time.
Assignment Guidelines
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Structure
You have been asked to produce a report. It should contain the following:
• Appropriate coversheet
• Title Page, including the given title in full.
• Contents Page
• Introduction
• Main body, which should also be organised under appropriate headings.
• Conclusion
• Appendices, which should be numbered.
o Make sure you refer your reader to them as required.
Some links:
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