Developing Automated Trading Systems Bowei Wei Worcester Polytechnic Institute

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Developing Automated Trading Systems Bowei Wei Worcester Polytechnic Institute Worcester Polytechnic Institute Digital WPI Interactive Qualifying Projects (All Years) Interactive Qualifying Projects May 2015 Developing Automated Trading Systems Bowei Wei Worcester Polytechnic Institute Essam R. Al-Mansouri Worcester Polytechnic Institute Isabella Sanchez Worcester Polytechnic Institute Thomas John Paolillo Worcester Polytechnic Institute Follow this and additional works at: https://digitalcommons.wpi.edu/iqp-all Repository Citation Wei, B., Al-Mansouri, E. R., Sanchez, I., & Paolillo, T. J. (2015). Developing Automated Trading Systems. Retrieved from https://digitalcommons.wpi.edu/iqp-all/1898 This Unrestricted is brought to you for free and open access by the Interactive Qualifying Projects at Digital WPI. It has been accepted for inclusion in Interactive Qualifying Projects (All Years) by an authorized administrator of Digital WPI. For more information, please contact [email protected]. Trading and Investment: Developing Autotrading Systems An Interactive Qualifying Project submitted to the Faculty of WORCESTER POLYTECHNIC INSTITUTE in partial fulfilment of the requirements for the Degree of Bachelor of Science by Tom Paolillo Essam Al-Mansouri Isabella Sanchez Bowei Wei Date: May 5, 2015 Report Submitted to: Professor Hossein Hakim Professor Michael Radzicki Worcester Polytechnic Institute Abstract The purpose of this Interactive Qualifying Project was to design four independent trading systems that operate on different time frames and strategies. After all four systems were developed, they were combined into a system of systems, to which simulated money was allocated based on the quality of each system. The results of these systems will be presented and analyzed individually and together as a system of systems in this report, and the background information needed to understand the work completed in this project will be presented and explained. Page 1 Table of Contents Abstract ...................................................................................................................................... 1 Table of Figures ........................................................................................................................... 5 1. Introduction ............................................................................................................................. 6 2. Background Information ............................................................................................................ 7 2.1. Trading & Investing ............................................................................................................ 7 2.2. Order Types ....................................................................................................................... 9 2.3. Manual Trading vs. Automated Trading ...............................................................................10 2.4. Brokers & Leverage ...........................................................................................................11 2.5. Software (MT4 and TradeStation) ........................................................................................11 2.6. Asset Classes ....................................................................................................................12 2.6.1. Currencies ..................................................................................................................12 2.6.2. Stocks ........................................................................................................................13 2.6.3. Bonds .........................................................................................................................13 2.6.4. Options ......................................................................................................................14 2.6.5. Mutual Funds ..............................................................................................................14 2.7. Market Conditions .............................................................................................................14 2.7.1. Volatile ......................................................................................................................14 2.7.2. Trending .....................................................................................................................15 2.8. Trading Tools & Indicators .................................................................................................16 2.8.1. Support & Resistance ...................................................................................................16 2.8.2. Bollinger Bands ...........................................................................................................18 2.8.3. Fibonacci Lines ...........................................................................................................18 2.8.4. Moving Averages ........................................................................................................19 2.8.5. Average True Range ....................................................................................................20 2.8.6. Stochastic Indicator .....................................................................................................21 2.8.7. Relative Strength Index ................................................................................................21 2.8.8. Average Directional Index ............................................................................................21 2.8.9. Keltner Channel ..........................................................................................................23 3. Trading System .......................................................................................................................24 3.1. Methodology of Developing a Trading System ......................................................................24 3.1.1. Setup ..........................................................................................................................24 3.1.2. Trigger .......................................................................................................................24 Page 2 3.1.3. Entry ..........................................................................................................................25 3.1.4. Exit ............................................................................................................................25 3.1.5. Position Sizing ............................................................................................................25 3.1.6. Time Interval ..............................................................................................................25 3.1.7. Money Management ....................................................................................................26 3.2. Types of Trading Strategies ................................................................................................26 3.2.1. Breakout .....................................................................................................................26 3.2.2. Trend Following ..........................................................................................................27 3.2.3. Support & Resistance ...................................................................................................27 3.3. Individual Strategies ..........................................................................................................28 3.3.1. Tom’s Strategy ............................................................................................................28 3.3.2. Bowei’s Strategy .........................................................................................................36 3.3.3. Isabella’s Strategy .......................................................................................................46 3.3.5. Essam’s Strategy .........................................................................................................54 3.4. Combining Strategies .........................................................................................................60 4. Conclusion ..............................................................................................................................64 5. Appendix ................................................................................................................................65 A. Easy Language Code ............................................................................................................65 A1. Tom’s Easy Language Code ............................................................................................65 A2. Isabella’s Easy Language Code ........................................................................................69 A3. Essam’s Easy Language Code ..........................................................................................72 A4. Bowei’s Easy Language Code ..........................................................................................84 B. Flow Charts ........................................................................................................................87 B1. Tom’s Flow Charts .........................................................................................................87 B2. Isabella’s Flow Charts .....................................................................................................90 B3. Essam’s Flow Charts .......................................................................................................92
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