TRADING SYSTEM

Trading System for Hedge Fund

Table of Contents

Trading system1

A statement of objective1

Components of a trading system2

The trading system2

Assumptions3

The rule5

Conclusion…………………………………………………………………………………………………... 6

Test of selected indicators on the Training Set Data7

Volume7

EMA8

Rate of Change9

SMA and Volume10

Test of selected indicators on the Prediction set data10

References13

Appendix14

Trading System for Hedge Fund

Trading system

A trading system has been designed for a hedge fund that comprises of clients, who are individuals with very good net worth and small investment funds. The clients of this hedge fund are all accredited clients and are sophisticated in terms of their investment amount. A hedge fund does not mean that the fund will certainly be using hedging strategy. The aim of this hedge fund trading system is to outperform the mutual fund and other investment avenues heavily dependent on the market (Agarwal 2005, p. 6).

The report aims at providing a detailed overview of the trading system used to manage the hedge fund to its investors. The purpose of the trading system is to ensure an advanced strategy for optimization. Optimization means that various indicators such as indicators of technical analysis used in strategy rules are modified though performing multiple tests (Hellström 2002, p. 3) . The purpose behind this modification is to come up with the single most profitable pattern that a security follows.

Devising a trading system is important in that it gives you a command over trading. With the experience, you learn and master the tricks of trade and eventually you know what will work in a specific market condition.

A statement of objective

The objective of this trading system is to provide common traders with expert fund management. This is important as an ordinary investor who does not possess the required expertise has a tendency of focusing on all the wrong things. The financial news in financial newspapers and magazines do not provide all the necessary information required to manage a fund profitably. Hence, a trading system is needed for such investors.

The trading system is made to ensure profitability for the hedge fund investment. The hedge fund will provide a minimum return of 10%. This is what the system wants to accomplish.

Components of a trading system

The trading system consists of the following components:

Set up conditions,

Stop loss for the worst case scenarios,

Filters for market,

Rules for re-entrance into the market after an exit,

Monitoring of size of the position for algorithm,

Multiple systems to suit the market conditions in different scenarios.

The trading system

The trading system is a form of business plan used by traders. In the following report, the indicators for technical analysis are used to test various combinations of technical analysis on Google.com for the data between 1 January 2009 - 21 October 2011 (See appendix). The indicators chosen were Metastock, exponential moving average (EMA), Rate of Change (ROC) and a fourth indicator that combines both Simple Moving Average (SMA) and Metastock.

Metastock- Metastock is one of the most widely used indicators by technical ...