Trading Strategy Assignment

[brianwat]

Hi Everyone

Firstly sorry if this is in the wrong forum, I have searched around and cant really find anything similar.

Im an undergraduate student in Finance and Investment. I have a trading strategy assignment this semester for a my Financial Derivatives module. The assignment is worth 50% of the marks for the module.
I am required to "actively" trade on stock trac (online trading simulator). I can invest in any asset class, or financial instrument. I have 5 weeks left to trade and then write a report on the performance of my portfolio. Ive spent the last couple of weeks reading around to see what I could come up with. I want to stick to one or maybe two overall strategies as I think it will make the report easier to write.

I plan to write the report similar to a journal paper. For example ill start with introduction, literature review, then evaluate the trading strategy. No marks are given for making money or losing money, just as long as I actively trade and write the report at the end ill be ok.

I can make up to 200 trades altogether and I have 1,000,000 theoretical capital in the account. Does anyone have any ideas or suggestions. Im just finding it hard starting off I think once I pick a strategy and stick to it for equites, options, futures, bonds, indices etc ill be fine. Any suggestions or links to further reading would be greatly appreciated.

 

[aaronhotchner]

http://www.nber.org/papers/w2977.pdf?new_window=1

I haven't actually read the paper fully but I'm pretty sure it's the one I'm thinking of. Lo basically argues that historically you could make money by buying stocks when they go up and shorting them when they go down, under the belief that returns are mean-reverting.

 

[brianwat]

http://www.nber.org/papers/w2977.pdf?new_window=1

I haven't actually read the paper fully but I'm pretty sure it's the one I'm thinking of. Lo basically argues that historically you could make money by buying stocks when they go up and shorting them when they go down, under the belief that returns are mean-reverting.

Thanks for the reply aaronhotcher, much appreciated I'll have a read of this now and see if I could implement it. Could I use this for futures, options etc also do you think?

 

[aaronhotchner]

Theoretically it would apply to derivatives as well, but the relationship would be much more complicated. Futures contracts on commodities, for example, will move both due to the spot price of the commodity as well as the cost of carry / convenience yield. Options are even worse, as you will see price movements that come from changes in volatility, as well as a constant drag on the option from theta.