Previous reading

• 【Factor analysis】 Vol. 1. Introduction the idea of factor analysis
• 【Factor analysis】 Vol. 2. Get ready - preparing and cleaning data
• 【Factor analysis】 Vol. 3. Construct your own factor

After we have collected all the fundamental data and have produced the factor data we need, how we can utilize them to compete with the market and to beat the benchmark return?

One of the common methods would be factor score. In this post, we’re going to describe and implement this factor score method to see how we can rate the stocks that have more potential to rise than the others in the future.

Previous reading

• 【Factor analysis】 Vol. 1. Introduction the idea of factor analysis
• 【Factor analysis】 Vol. 2. Get ready - preparing and cleaning data

After we got the fundamental data we needed from any data source you preferred or paid as in the previous post, we’re now going to generate factors to be used in the factor analysis.

We’ve talked about the definition of survivor bias and the impact if we didn’t notice and resolve it in 【How 2】 Vol. 3. How to produce a quality tradable securities for backtesting. One of the most critical topics that we need to address is to get the accurate list of components of your target portfolio over time when developing your investing strategy. Therefore, I’m gonna use S&P 500 Index as the example to go through this post, and we’re gonna use the result to the later series in 【Factor analysis】 Vol. 1. Introduction the idea of factor analysis.

In the last post Vol. 1. Introduction the idea of factor analysis, we have introduced the concept of factor analysis. There are various ways to implement the factor analysis against the problem you’re trying to resolve or explain. However, any of them would require proper data to be provisioned.

Just like the cover image that I used in this post implies. All the top-tiered chefs know how to make good dishes as their skills are polished and proficient. In the end, the quality of the ingredients matter. That’s why it’s essential to acquire the right data in the right way, and then you’ll have the solid foundation to proceed with the analysis.

In previous posts, we’ve been talking about the momentum strategies like MACD strategy and turtle strategy. These are the standard strategies based on the hypothesis that when the environmental variables, such as price moving average, technical indicators, and other subjective numbers, meet certain requirements, the stock price would follow the trends and continue to go up/down. The scholars believe that the momentum would continue pushing the stock price further if such investor confidence has been established.

Other than that, there is also another methodology out there, called factor analysis. To explain this in detail, I’m going to separate this huge topic into several parts:

Last post in 2020. See you, 2020. See you, in 2021.

The Turtle Traders experiment was conducted in the early 1980s by Richard Dennis and William Eckhardt to see whether anyone could be taught how to make money in trading. Therefore, the trading strategy that has been taught to these apprentices is named after this experiment as “Turtle Strategy“.

In this post, we’re going to quickly go through the turtle strategy itself, and I’m going to experiment with a few things against the backtesting platform that I’m checking out recently: JoinQuant.

The above line chart shows how we have been doing on the enhanced MACD strategy as of today (2020/12/11 EST).

It’s been 19 trading days since we’ve launched our automatic trading script to trade on TD Ameritrade on 2020/11/17. So far, we have accumulated ~6% of the total investment even with a huge dip on Dec 9th.

Tradable securities are the securities that are available to be traded on the market that day. Each security could be either add into or remove from this tradable set such as delisted, company bankrupt, and so on. It’s important for us to obtain this list before we place the order on the day, otherwise, we’re probably going to buy or sell the securities that are not available on the market.

In this article, I’m going to talk about how I built mine by reverse engineering what I have in order to build this tradable securities list. Even though it’s probably not the most accurate one, but could be a start for those who don’t have enough resources to get these tradable securities from elsewhere.

At the beginning of this week (2020-Nov-16th), I have launched my script and traded live on the stock market. Again, having a professional habit of a project manager, I’m here to report how the project goes and what has been done.

Quick words

This is the Vol. 2 of the 【How 2】 column.
It has been 3 weeks since my previous post. As my MACD strategy automated trading script is almost completed, I would like to share this article to document my current research methodology and workflow that I used to capture the new idea from the internet. Hopefully, this can help anyone who’s doing the same as I am doing now, and I can review this in the future to improve my workflow.