Low risk trading algorithm based on the price cyclicality function for capital markets

Cristian Pauna ()

Management & Marketing, 2019, vol. 14, issue 1, 80-89

Abstract: Buy cheap and sell more expensive is one of the basic ideas of trading the capital markets for hundreds of years. To apply it in practice has become difficult nowadays due to the high price volatility. The uncertainty in the price movements often leads to high-risk allocation. One main question is when the price is low enough for a low-risk entry? Once established an entry point, the second question is how long to keep the open trades in order to optimize the investment efficiency? This article will answer these questions. A general trading algorithm based on the price cyclical behavior will be revealed. The mathematical model is developed using the Price Cyclicality Function combined with other computational techniques in order to establish low-risk intervals. The algorithm will use multiple entry points in order to catch the best price opportunities. A simple empirical exit algorithm will be optimized in order to maximize the profit for a certain capital exposure level. The presented model uses a low number of functional parameters which can be optimized with a reasonable computational effort for any financial market. Trading results obtained for several markets will also be included in this paper in order to reveal the efficiency of the presented methodology. It was found that the Low-Risk Trading Algorithm can be used with good results for algorithmic trading in any financial market. With the right parameters set, this methodology can be wide range applied in the stock markets, currency and cryptocurrency markets, commodities and raw materials markets and even for the real estate investments. The simplicity of the presented model and the good efficiency level obtained will recommend it. This methodology can be used by any investor in order to manage the investment plan with multiple capital markets.

Keywords: capital markets; price cyclicality; trading methodology; capital investment; low risk (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:manmar:v:14:y:2019:i:1:p:80-89:n:6

DOI: 10.2478/mmcks-2019-0006

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