Worcester Polytechnic Institute Digital WPI Interactive Qualifying Projects (All Years) Interactive Qualifying Projects February 2018 Stock Simulation Analysis Didi Dai Worcester Polytechnic Institute Follow this and additional works at: https://digitalcommons.wpi.edu/iqp-all Repository Citation Dai, D. (2018). Stock Simulation Analysis. Retrieved from https://digitalcommons.wpi.edu/iqp-all/2676 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]. Project Number: DTZ 1709 An Interactive Qualifying Project Report: Submitted to the Faculty of WORCESTER POLYTECHNIC INSTITUTE in partial fulfillment of the requirements for the Degree of Bachelor of Science By Didi Dai _____________________________ Submitted: February 25, 2018 Approved by Professor Dalin Tang, Project Advisor ___________________________________________ Abstract This project is a four-week stock simulation research. The goal of the project is for the participant to gain stock trading experience through a real-time simulation so that she can make calculated, well-informed stock investment decisions in the future. This project reviewed the current stock market, analyzed two existing trading techniques, and ran stock simulations on six targeted companies with an investment of $500,000 for each trading method. The results from the simulations indicate that the Technical Trading method is more profitable than the Swing Trading method. This project provided the participant with valuable trading experiences that will be beneficial to future investments. 2 Acknowledgements The success of my Interactive Qualifying project (IQP) would not have been possible without the help of many individuals. I would like to start off by thanking Professor Tang for his continuous support and guidance throughout the project. Additionally, I would like to thank my friend, Trevor Valcourt, who helped me collect the simulation data. I would also like to thank my parents for their emotional and financial support. Furthermore, I would like to express my gratitude towards my school, Worcester Polytechnic Institute (WPI) for the logistical support and pacification. The project would not have reached this point if it was not for their countless recommendations and guidance in solidifying my project. 3 Table of Contents Abstract .................................................................................................................................................... 2 Acknowledgements .............................................................................................................................. 3 List of Figures ......................................................................................................................................... 6 List of Tables ........................................................................................................................................... 7 Chapter 1: Introduction ...................................................................................................................... 8 1.1 Stock Market History ................................................................................................................................ 8 1.2 Important Factors of Stock Market ...................................................................................................... 9 1.3 Stock Market Index ................................................................................................................................. 11 1.3.1 Dow Jones Indices (DJI) .................................................................................................................................. 11 1.3.2 Nasdaq Composite Index (NASDAQ) ........................................................................................................ 13 1.3.3 Standard & Poor’s 500 Index (S&P 500) ................................................................................................. 14 1.3.4 The Russell 2000 Index (RUT) .................................................................................................................... 15 1.3.5 Morgan Stanley Capital International Europe, Australasia, Far East Index (MSCI EAFE) .. 16 1.4 Past Researches on Stock Simulation .............................................................................................. 17 1.4.1 WPI researches .................................................................................................................................................. 17 1.4.2 Non-WPI researches ........................................................................................................................................ 18 1.5 Stock Market Crashes in History ....................................................................................................... 18 Chapter 2: Methodology .................................................................................................................... 21 2.1 Stock Simulation Engine ....................................................................................................................... 21 2.2 Investment Strategy ............................................................................................................................... 23 2.2.1 Technical trading .............................................................................................................................................. 23 2.2.2 Swing Trading .................................................................................................................................................... 24 2.3 Data Analysis Method ............................................................................................................................ 25 2.3.1 Fundamental Analysis ..................................................................................................................................... 25 2.3.2 Technical analysis ............................................................................................................................................. 27 2.3.3 Data Analysis to Compare Trading Results ............................................................................................ 27 Chapter 3: Technical Trading ......................................................................................................... 29 3.1 Company Selected ................................................................................................................................... 29 3.2 Simulation .................................................................................................................................................. 32 3.2.1 Week One ............................................................................................................................................................. 33 3.2.2 Week Two ............................................................................................................................................................ 36 3.2.3 Week Three ......................................................................................................................................................... 39 3.2.4 Week Four ............................................................................................................................................................. 42 3.3 Results ......................................................................................................................................................... 46 Chapter 4: Swing Trading ................................................................................................................. 49 4.1 Company Selected ................................................................................................................................... 49 4.2 Simulation .................................................................................................................................................. 52 4.2.1 Week One ............................................................................................................................................................. 53 4 4.2.2 Week Two ............................................................................................................................................................ 56 4.2.3 Week Three ......................................................................................................................................................... 61 4.2.4 Week Four ............................................................................................................................................................ 65 4.3 Results ......................................................................................................................................................... 69 Chapter 5: Analysis and comparison ............................................................................................ 72 Chapter 6: Conclusion ........................................................................................................................ 76 References ............................................................................................................................................. 77 Appendix