Quantitative Trading Strategies in R Part 3 of 3

Computational Finance and Risk Management mm

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Quantitative Trading Strategies in R 40

Part 3 of 3 60

Guy Yollin Principal Consultant, r-programming.org Visiting Lecturer, University of Washington

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Outline mm

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MACD example

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MACD example extended to multiple assets

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Optimizing the MACD trading system

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RSI example

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Bollinger band example

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Summary 80

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Lecture references mm 40 60 R-forge: 80 100 TradeAnalytics project page on http://r-forge.r-project.org/projects/blotter/

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documents and demos for: 40

blotter package quantstrat package

R-SIG-FINANCE: https://stat.ethz.ch/mailman/listinfo/r-sig-finance 60

Kent Russell’s Timely Portfolio blog: http://timelyportfolio.blogspot.com/ 6-part quantstrat example 80

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Quantstrat demos mm

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name='sigCrossover' name='sigThreshold' ordertype='market' ordertype='stoplimit' type='enter' type='exit'40 type='risk' orderside='long' orderside='short' applyStrategy parameters index.class='Date' 60 index.class='POSIXt' multiasset multicurrency data adjusted updates Account

faber Y N Y N Y Y N Y N N N Y Y N N N

60 maCross Y N Y N Y Y N Y N N Y N N N Y N

bbands 80 Y N Y N Y Y N N N Y Y N N N N N

rsi N Y Y N Y Y N Y Y Y Y N Y N N N

100 macd N Y Y Y Y Y Y Y N Y Y N N N N N

120 faberMC Y N Y N Y Y N Y N N N N Y Y N N

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demos are located in ∼/R-2.13.1/library/quantstrat/demo Guy Yollin (Copyright

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Outline mm

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MACD example

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MACD example extended to multiple assets

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Optimizing the MACD trading system

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RSI example

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Bollinger band example

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Summary 80

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MACD (Moving Average Convergence-Divergence) mm

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Trend-following momentum indicator Published by Gerald Appel in the late 1970 40

MACD Calculation MACD = 12-day EMA - 26-day EMA MACD Signal Line = 9-day EMA of MACD MACD histogram = MACD - Signal Line 60

Interpretation Buy/Sell when MACD Signal Line crosses 0 80

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MACD system in TradeStation mm

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MACD code in EasyLanguage mm

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EasyLanguage code inputs : F a s t L e n g t h ( 12 ) , S l o w L e n g t h ( 26 ) , MACDLength ( 9 ) ; v a r i a b l e s : MyMACD( 0 ) , MACDSig ( 0 ) ;

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MyMACD = MACD( C l o s e , F a s t L e n g t h , S l o w L e n g t h ) ; MACDSig = XAverage ( MyMACD, MACDLength ) ; i f MACDSig c r o s s e s a b o v e 0 t h e n Buy ( ”MacdLE ” ) n e x t b a r a t m a r k e t ;

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i f MACDSig c r o s s e s b e l o w 0 t h e n S e l l ( ”MacdLX ” ) n e x t b a r a t m a r k e t ;

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MACD indicator from TTR mm

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Initialize currency and trading instruments Initialization

Define strategy

mm Initialize currency and instruments, and load historic data

40 Initialize portfolio, account, orders, strategy

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Add indicators, signals, and rules

Bar-by-bar processing

Update

Apply strategy to portfolio

Update portfolio, account, equity

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Reporting

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120 Generate performance reports and graphs

40 R Code: > > > > > > > > >

library(quantstrat) # inz currency and stocks dummy > > >

# inz portfolio, account, orders, strategy strat.name 60 args(sigThreshold) function (label, data = mktdata, column, threshold = 0, relationship = c("gt", "lt", "eq", "gte", "lte"), cross = FALSE) 40 NULL

Main arguments: label text label to apply to the output 60 data data to apply comparison column column name to apply comparison threshold numeric threshold to compare relationship 80 relationship to test (”gt”, ”lt”, ”eq”, ”gte”, ”lte”) cross if TRUE, then signal will be TRUE only for the first observation to cross the threshold Guy Yollin (Copyright

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Define indicators and signals Initialization mm

Initialize currency and instruments, and load historic data

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Initialize portfolio, account, orders, strategy

Define strategy

Bar-by-bar processing

Update

Add indicators, signals, and rules

Apply strategy to portfolio

Update portfolio, account, equity

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Reporting

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Generate performance reports and graphs

R Code: > # indicators: > strat # signals: > strat strat osPercentEquity

# parameters: fastMA =60 12 slowMA = 26 signalMA = 9 maType="EMA" # apply strategy out dummy if(sum(duplicated(index(getPortfolio(strat.name)$summary)))>0) { tempPortfolio chart_Posn(Portfolio=strat.name,Symbol="XLF") > plot(add_MACD())

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MACD system performance for XLF mm

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Outline mm

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MACD example

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MACD example extended to multiple assets

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Optimizing the MACD trading system

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RSI example

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60 5

Bollinger band example

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Summary 80

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Quantstrat/Blotter portfolios with multiple assets mm

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While most of the quantstrat demos use a single asset, the real power of the architecture is that it supports multiple assets To use a multiple-asset portfolio, simply supply a symbol list when calling 40 initPortf All functionality should simply work with the entire portfolio of assets applying a strategy via applyStrategy will generate transactions for all assets according to the define trading rules 60 calculating portfolio P&L via updatePortf will accumulate the P&L for all assets

Due to the additional calculations required, working with multi-asset portfolios can be time consuming 80

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Initialize currency and trading instruments Initialization

Define strategy

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R Code: > > > > > > > > > >

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Bar-by-bar processing

Apply strategy to portfolio

Reporting

Update

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# clear out old portfolios and orders try(rm(list=ls(pos=.blotter),pos=.blotter),silent=TRUE) try(rm(list=ls(pos=.strategy),pos=.strategy),silent=TRUE) # inz currency and stocks 60= c("XLF", "XLP", "XLE", "XLY", "XLV", "XLI", "XLB", "XLK", "XLU") stock.str for(symbol in stock.str) stock(symbol, currency="USD",multiplier=1) # download stocks start.data > > > >

# inz portfolio, account, orders, strategy strat.name 60 length(macdPortfolio$symbols) [1] 9

60 > names(macdPortfolio$symbols) [1] "XLF" "XLP" "XLE" "XLY" "XLV" "XLI" "XLB" "XLK" "XLU"

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Define indicators and signals Initialization mm

Initialize currency and instruments, and load historic data

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Initialize portfolio, account, orders, strategy

Define strategy

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Update

Add indicators, signals, and rules

Apply strategy to portfolio

Update portfolio, account, equity

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Reporting

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Generate performance reports and graphs

R Code: > # indicators: > strat # signals: > strat strat osPercentEquity

# parameters: fastMA =60 12 slowMA = 26 signalMA = 9 maType="EMA" # apply strategy out dummy if(sum(duplicated(index(getPortfolio(strat.name)$summary)))>0) { tempPortfolio > >

Initialize portfolio, account, orders, strategy

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Define strategy

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Reporting

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library(PerformanceAnalytics) trading.pl > >

fastMA mm >

# inz portfolio, account, orders, strategy strat.name 60 strat # signals: > strat strat # rules: > strat strat # rules: > strat strat # apply strategy > out dummy if(sum(duplicated(index(getPortfolio(strat.name)$summary)))>0) { tempPortfolio plot(add_RSI()) > trading.pl rets charts.PerformanceSummary(rets,colorset = bluefocus,xlab="")

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AMAT performance for RSI strategy mm

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RSI portfolio performance Net.Trading.PL Performance

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Outline mm

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MACD example

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MACD example extended to multiple assets

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Optimizing the MACD trading system

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RSI example

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Bollinger band example

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Summary 80

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Bollinger bands mm

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Bollinger bands are a volatility-sensitive price channel

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Published by John Bollinger in the early 1980s RSI 40 Calculation Calculate a simple moving average (typically 20 days) of the C (either the close or weighted-close) Upper band: MA + N × StdDev(C ) Lower band: MA − N × StdDev(C ) 60 N typically in the range of 2 to 3

Interpretation Trade reversals between the upper and lower bands Trade break-outs above/below the bands 80

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Oil services HOLDR stocks mm

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HOLDRS are ETFs that represent a basket of stocks in a specific industry segment The oil services HOLDR includes companies specifically involved in oil 40 drilling and related services We’ll apply the Bollinger band system to 5 components of the oil services HOLDR ETF SLB - Schlumberger 60 RIG - Transocean HAL - Haliburton BHI - Baker Hughes DO - Diamond Offshore 80

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Initialize currency and trading instruments Initialization mm

Initialize currency and instruments, and load historic data

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Initialize portfolio, account, orders, strategy

Define strategy

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Update

Add indicators, signals, and rules

Apply strategy to portfolio

Update portfolio, account, equity

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Reporting

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Generate performance reports and graphs

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R Code: > # inz currency and stocks > stock.str = c("SLB","RIG","HAL","BHI","DO") > for(symbol 60 in stock.str) stock(symbol, currency="USD",multiplier=1) > # download stocks > start.data end.data initDate for(symbol in stock.str) getSymbols(symbol,from=start.data,to=end.data,adjust=T) Guy Yollin (Copyright

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Initialize portfolio, account, and orders object mm Initialization

Initialize currency and instruments, and load historic data

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Initialize portfolio, account, orders, strategy

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Define strategy

Bar-by-bar processing

Update

Add indicators, signals, and rules

Apply strategy to portfolio

Update portfolio, account, equity

Reporting

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Generate performance reports and graphs

R Code: > > > > > >

# inz portfolio, account, orders, strategy strat.name 60 strat # signals: > strat strat strat # rules: > strat strat strat > > > >

# parameters: 60 SD = 2 N = 20 # apply strategy out dummy if(sum(duplicated(index(getPortfolio(strat.name)$summary)))>0) { tempPortfolio plot(add_BBands()) > trading.pl rets charts.PerformanceSummary(rets,colorset = bluefocus,xlab="")

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DO performance for BBands strategy mm

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Bollinger bands portfolio performance Net.Trading.PL Performance

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Outline mm

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MACD example

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MACD example extended to multiple assets

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Optimizing the MACD trading system

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RSI example

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Bollinger band example

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Summary 80

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Summary of blotter and quantstrat mm

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Transaction infrastructure for defining instruments, transactions, portfolios and accounts for trading systems and simulation. Provides portfolio support for multi-asset class and multi-currency portfolios. Still40 in heavy development. Despite beta-status, software is used everyday by hearty working professions in asset management Inherent 60 flexibility provided by R allows analysis that is still unavailable in some dedicated commercial packages Although the software is free, be prepared to pay some dues in terms of time and effort to get things working R-SIG-FINANCE is your friend

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