SMA-Based Trading Strategy

In this trading strategy, we utilize the Simple Moving Average (SMA) indicator to make automated decisions when buying and selling stocks. The SMA helps us identify potential market trends and make informed trading choices.

Assumptions

• Time Frame: The algorithm backtests its strategy using historical data from the past year.
• Initial Account Balance: The algorithm starts with an initial account balance of $100,000.
• SMA Calculation Period: The SMA indicator is calculated using a period of 14 days.
• Market Close: All shares are bought using the closing price of the stock.

*To change these assumptions, scroll to the bottom and go to SMA Strategy with custom parameters.

Buying Shares (Price Close to SMA)

• Buy Signal: The algorithm generates a "buy signal" when the price of the stock is trading close to the SMA. When the price is less than 2% away from the SMA, we are assuming the stock is at a reasonable price to buy.
• Execution: The algorithm buys a share every day as long as the stock price is less than 2% away from the SMA.

Selling Shares (SMA Crossover - Death Cross)

• Sell Signal: The algorithm generates a "sell signal" when the price is more than 5% above the SMA. We assume this means that the stock is overbought.
• Execution: When the price rises this far above the SMA, the algorithm sells all open shares of the stock.

If an error occurs, then the stock does not move far enough from SMA to complete trades in this period. If this happens, pick another stock or use the link at the bottom of the page to specify custom parameters.

The key advantage of this strategy is automation, which can save time and reduce emotional biases. However, it's important to remember that no trading strategy is risk-free. Proper risk management and diversification are essential for successful trading.