Write an executive summary about backtesting with a discussion on potential drawbacks

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Technical indicators and back-testing your trading idea with historical data. Using asset classes, i) Stocks which can include indices, you’ll be asked to test a short term investment strategy for a single or portfolio of at least 3 assets. In either case, use an initial capital of $10 million or equivalent in another currency

Questions 1. [10 pts] Write an executive summary about backtesting with a discussion on potential drawbacks and importance of this approach for algorithmic trading.

2. [20 pts] Explain your strategy and technical indicator in details. The coursework should encompass the selection and rationale behind the strategy. Please note that you are required to use of the indicators covered during the lectures.

3. [10 pts] Describe your daily dataset, which you should obtain from sources such Bloomberg, or Capital IQ, and explain any pre- processing you have done and how you have cleaned it.

4. [10 pts] Describe your steps how to backtest the strategy over a previous period of last 12 months.

5. [25 pts] Present your findings on backtesting which must include an estimate of trading costs. Note that you will be using past 12 months of daily data for backtesting but your strategy must also be tested on a forthcoming daily or weekly period (out-of-sample test) in April or May 2018. Demonstrate how you have tried to optimise the strategy for performance and why you believe that the strategy is not over-fitted.

6. [15 pts] Compare your chosen indicator with another similar indicator. Show how you have tried to minimise trading costs. Present your portfolio (or single asset) returns.

7. [10 pts] Give a detailed assessment of the performance of the strategy. Here, plot and show time periods where your strategy is profitable. What do you observe? Explain. Assignment

Guidelines . Structure You have been asked to produce a report. It should contain the following:

• Appropriate coversheet

• Title Page, including the given title in full.

• Contents Page • Introduction • Main body, which should also be organised under appropriate headings.

• Conclusion

• Appendices, which should be numbered. o Make sure you refer your reader to them as required... Layout Your work should be word-processed in accordance with the following:

• Font style, Arial, font size 12

• 1.5 line spacing.

• The page orientation should be ‘portrait

’ • Margins on both sides of the page should be no less than 2.5 cm

• Pages should be numbered

• 2500 words

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