May, 2022 - Algo Trading Pro - Page 2

Let’s take a closer look at the bad trades that are destroying our profits in the Microsoft back-test. Clearly, our simple systematic trading strategy works, and Zorro Trader enters and exits trades profitably when a sustained trend exists. The bad trades occur almost always when the price wiggles a lot around the moving average, which usually happens when the market is in a trading range. During those periods, the moving average is almost horizontal (no trend) and the price fluctuations seem to be random noise. But they do trigger a lot of small losing trades, because there is no trend to follow – and it costs us a lot of money.

We will try to back-test our simplest trend following strategy in Zorro Trader for two more underlying assets. We selected Apple, Inc. (AAPL) and Microsoft Corp. (MSFT) because both exhibited fairly long and sustained trends in the past, so they should be suitable for any trend following strategy. Our simplest systematic trend following strategy did not perform very well on the SPY ETF, and we want to compare the performance with these stocks. Here is the full code of the strategy again:

In this post, we will implement the simplest systematic trend following strategy in Zorro Trader, and we will run a back-test to measure its historical performance. The image above represents graphically the output of the strategy in a back-test. The underlying asset in this case is the SPY, an SP500 exchange traded fund (ETF). In plain English, the strategy can be expressed as follows:

Zorro Trader is the most advanced algorithmic trading and quantitative analysis platform available on the market today. It seems the creators of Zorro Trader like to call it a data analysis tool. We will call it an algorithmic trading platform though, and hope nobody will mind. And, indeed, it does beat any other platform we ever used. Zorro Trader is an industry-grade tool that can do anything you could possibly want. From trading strategy research to back-testing and live trading, Zorro Trader got it all. Zorro Trader also comes with a plethora of technical indicators, both new and old, and a great library of statistical tools. Usually, every new version of Zorro Trader adds something more to these features.