The introduction of financial engineering and the simply calculation of OSV

1. Introduction

– What is a time series using daily closing prices?

– What is Directional Change (DC)

– Objective of the thesis: to study algorithmic trading using the concept of DC

[There is no need to give an introduction as broad as “what is computational finance” or “what is the current state of computational finance”. That would be too broad.]

2. Formal definition of DC

You may use the documents that I provided in CF963.

3. Introduction of two algorithmic traders using DC

(i) trend follower (TF) – it opens a *long* position at DC confirmation of an uptrend, and closes the position at DC confirmation of a downtrend. RAISE 5%-BUY?DECLINE 5% SELL

(ii) contrarian trader (CT) – it does exactly the opposit: it opens a *short* position at DC confirmation of an uptrend, and closes the position at DC confirmation of a downtrend. INCREASE 5%- SELL?DECLINE 5% SELL

CF683:

http://www.bracil.net/teaching/CFE/

programming

1.Trend Follower trading algorithm, assuming threshold Th:

Rule 1 (Open Position): Buy at DC confirmation point(uptrend) INCREASING, let the buy price be P

Rule 2 (Take Profit): Close position at price = P * (1 + Th)

Rule 3 (Stop Loss): Close position at price = P * (1 – Th)

2.The Contrarian should do the opposite.

Rule 1 (Open Position): Sell at DC confirmation point(uptrend) decreasing, let the buy price be P

Rule 2 (Take Profit):

Rule 3 (Stop Loss):

4. Run the two algorithms on a data (pick any data set you like).

5. Summarize the results

[They don’t have to make money. You must explain the results clearly.]?calculate how many money to earn and how many to lose.

6. Conclusion

Summarize what you have done.

In What is Directional Change (DC), describe what DC is in words.

In ‘formal definition of DC’, use formal definition based on my technical report: http://www.bracil.net/finance/papers/Tsang-DC-CCFEA_wp01050-2010.pdf

Make sure you cite this document!

CF683:

http://www.bracil.net/teaching/CFE/

put it to third point to write it

Trend Follower trading algorithm, assuming threshold Th:

Rule 1 (Open Position): Buy at DC confirmation point (up), let the buy price be P

Rule 2 (Take Profit): Close position at price = P * (1 + Th)

Rule 3 (Stop Loss): Close position at price = P * (1 – Th)

The Contrarian should do the opposite.

Rule 1 (Open Position): Sell at DC confirmation point(down), let the buy price be P

Rule 2 (Take Profit): Open position at price = P * (1 + Th)

Rule 3 (Stop Loss): Open position at price = P * (1 – Th)