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Cit 3256 Algorithmic Trading Systems Design Course Outline

Trading system

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102 views5 pages

Cit 3256 Algorithmic Trading Systems Design Course Outline

Trading system

Uploaded by

y mugambi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CIT 3256 ALGORITHMIC TRADING SYSTEMS DESIGN (45 CONTACT HOURS)

Pre-requisite:
Course Purpose
Students will learn theories, models, quantitative methods and their applications as they relate to
technically motivated, data-driven directional trading. Students will also acquire an
understanding of what is required to build, deploy and manage quantitative trading systems
successfully.
Expected Learning Outcomes
By the end of this course the student should be able to:
1. Explain directional trading data driven trading of financial instruments
2. Demonstrate an understanding of different financial charting softwares
3. Build a trading system
4. Build a financial system for managing risk and capital

Course Description
Basic concepts: Market structure, price action, Random walk, EMH, Wyckoff
Overview of analytical methods (macroeconomic, fundamental, technical)
Trading strategy design, types of systems, The market as a reflection of crowd psychology, The
importance of an edge, Using quantitative methods in system design
Technical analysis: charting systems like renko, candlesticks, bar, heiken ashi, indicators like
moving averages, RSI, stochastics.
Technical trading: Trend Following Systems, Trend and Counter-trend
systems, spreads and pairs trading, Value-Based Equity strategies, Discretionary strategies,
Events and pattern recognition strategies
Charting softwares: MT4, MT5, trading view etc
Building a trading system: Building Entry and Exit signals, defining trade management rules,
Managing risk and capital
System testing: Back testing vs forward testing, In-sample, out-of-sample testing
Record-keeping
Psychology the trading: The unique challenges of trading, Managing cognitive biases
Discipline, Trading as a business
Basics of Algorithmic Trading: Know and understand the terminology, Algo Trading Strategy
Infrastructure
Market Microstructure for Trading: Detailed understanding of ‘Orders’, ‘Pegging’, ‘Discretion
Order’, ‘Blended Strategy’, Market Microstructure concepts, order book, market microstructure
for high frequency trading strategy
Implementing Markov model and using tick-by-tick data in your trading strategy
Technical analysis and the methodology of trading system design, algorithmic trading model,
Evaluation criteria for systematic models and funds
Common trading strategies used in algo-trading: High Frequency Trading (HFT), Trend
Following Strategies, Arbitrage Opportunities, Mathematical Model Based Strategies, Trading
Range (Mean Reversion), Volume Weighted Average Price (VWAP), Time Weighted Average
Price (TWAP), Implementation Shortfall
Derivatives -- financial markets, arbitrage arguments, options, and other financial instruments,
options pricing, numerical methods.
Time Series Analysis -- financial data, linear and non-linear time series analysis, clustering and
pattern recognition.
Trading / Investment Strategies -- CAPM, Kelly criteria, online algorithms, order execution,
technical analysis.
Future trends in algorithmic trading: Artificial Intelligence and Trading
Machine Learning for Trading: Modeling data with AI, index and predicting next day’s closing
price, Supervised learning algorithms, Natural Language Processing (NLP) and Sentiment
Analysis. Confusion Matrix framework for monitoring algorithm’s performance
Model Cross Validation techniques and variable selection, Logistic Regression to predict the
conditional probability of the market direction, Linear Discriminant Analysis for linear
combinations, Ridge Regression and Lasso Regression for prediction optimization, Decision
Trees & additive modeling, understand principle component analysis and back-test PCA based
long/short portfolios

Course outline
Week 1: Introduction to Algorithmic Trading Systems Design
 Setting up the Python trading environment.
 Fetching stock data using Yahoo Finance API.
 Visualizing stock data using matplotlib.
 Resampling data to different time frames (e.g., daily, weekly).
 Calculating basic statistics: mean, median, volatility.
Week 2: Basic Technical Indicators
 Plotting candlestick charts.
 Technical indicators
 Calculating Moving Averages (SMA, EMA).
 Implementing the RSI (Relative Strength Index).
 Coding the MACD (Moving Average Convergence Divergence) indicator.
 Visualizing stock data with overlaid indicators.
 Generating simple buy/sell signals based on crossovers.
Week 3: Advanced Charting Techniques
 Implementing and plotting the Heiken Ashi technique.
 Coding Renko charts.
 Identifying support and resistance levels.
 Visualizing volume with Volume Profile.
Week 4: Strategy Development
 Designing a moving average crossover strategy.
 Implementing a mean-reversion strategy.
 Coding a breakout strategy based on volatility.
 Backtesting strategies with basic performance metrics.
 Incorporating stop-loss and take-profit rules.
Week 5: Advanced Technical Indicators
 Calculating Bollinger Bands.
 Implementing the Stochastic Oscillator.
 Coding the ADX (Average Directional Index).
 Visualizing multiple indicators on interactive charts.
 Generating composite trading signals from multiple indicators.
Week 6: Pairs Trading and Correlation
 Retrieving and comparing data for stock pairs.
 Calculating correlation and cointegration.
 Designing a basic pairs trading strategy.
 Visualizing spread and z-score for pairs.
 Implementing a rolling z-score for dynamic trading decisions.
Week 7: Event-Driven Strategies
 Detecting and coding for corporate actions (dividends, splits).
 Designing an earnings momentum strategy.
 Implementing a gap trading strategy.
 Backtesting event-driven strategies.
 Visualizing stock price reactions to events.
Week 8: Machine Learning in Trading
 Implementing a basic linear regression model for prediction.
 Designing a moving average strategy optimized using a simple machine learning model.
 Implementing and backtesting a decision tree-based trading strategy.
 Feature engineering for improved machine learning models.
 Evaluating model accuracy and overfitting in trading strategies.
Week 9: Portfolio Management and Risk
 Calculating portfolio returns and volatility.
 Coding a basic portfolio optimization using the Efficient Frontier.
 Implementing the Sharpe and Sortino Ratios.
 Calculating Value at Risk (VaR) and Conditional VaR.
 Designing and coding a portfolio rebalancing strategy.
Week 10: Advanced System Features and Finalization
 Incorporating slippage and commission in backtesting.
 Implementing a trailing stop-loss mechanism.
 Coding for real-time data updates and dynamic trading.
 Integrating multiple strategies into a comprehensive trading system.
 Performance analysis and system evaluation.
Teaching Methodology
Lectures, practical and tutorial sessions in Computer Laboratory, individual and group
assignments, exercises and project work
Instructional Materials
Whiteboard, Computers and Internet
Course Assessment
30% Continuous Assessment 70% End of Semester Examination.
Course Text Books
1. Dr Howard B Bandy(2011), Quantitative Trading Systems: Practical Methods for Design,
Testing, and Validation Second Edition, Blue Owl Press; Second edition, ISBN-10:
0979183839, ISBN-13: 978-0979183836
2. George Pruitt, John R. Hill and Michael Russak(2012), Building Winning Trading
Systems with Tradestation, Wiley; 2 edition
3. Robert Pardo(1992), Design, Testing, and Optimization of Trading Systems, Wiley; 1
edition, ISBN-10: 0471554464, ISBN-13: 978-0471554462
4. Perry Kaufman(2004),New Trading Systems and Methods, Wiley(Fourth edition)
5. Rishi Narang(2009), Inside the Glass Box: The Simple Truth About Quantitative Trading

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