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Algorithmic Trading Research Paper

925 Words4 Pages

Algorithmic Trading Algorithmic trading (or automated trading) is the process of using computers programmed to follow a defined set of instructions for placing a trade at a speed that is much faster than a human trader. The defined sets of rules are based on timing, price, quantity or any mathematical model. It helps to rule out the impacts of human emotions on trading activities. Suppose we have the following simple trade criteria: • Buy 1,000 shares of a stock when its MACD line moves above its signal line. • Sell 1,000 shares of the stock when its MACD line falls below its signal line. Based on these simple instructions, we can write a program that will automatically monitor the stock price and place buy and sell orders when defined conditions …show more content…

We can adopt a simple neural network as our forecasting system and select several technical indicators as input signals. After training the neural network we can test the validity of each individual indicator and its combinations. The experiments are then conducted on the time series data of a major stock index. Based on the results, we can find a more effective trading strategy to improve investment returns. To test the whole model, we should obtain the percentages of accurate predictions for different network topologies, different transfer functions, and different combinations of these basic technical indicators. Finally, the investment return achieved from the proposed trading system should be compared with the results if the buy-and-hold strategy is …show more content…

The first uses the basic rules of MACD to decide entry and exit points. MACD is the difference between two EMAs and acts as a momentum indicator. The second method relies on both MACD and its MACD histogram. A MACD histogram is the difference between the MACD line and its signal line. We treat this histogram very much like an acceleration factor. The third method is the modification of MACD, making it a zero-lag MACD indicator. Software vendors provide clients with explanations on how to construct this zero-lag indicator. It attempts to remove ‘lag’ in the MACD indicator. This is done by using a zero-lag moving average instead of a traditional moving average. The zero-lag moving average places greater weight on recent prices, and less weight on older

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