Mastering Python for Finance - Second Edition

Designing the trend-following algorithm

Suppose that this time, we believe that the current market conditions exhibit a trend-following pattern, perhaps due to seasonal changes, economic projections, or government policy. As prices fluctuate, and as the short-term average price level crosses the average long-term price level by a certain threshold, we generate a buy or sell signal.

First, we resample raw tick-level data into standard time series intervals, for example, at one-minute intervals. Second, taking a number of the most recent periods, for example, with five periods, we calculate the short-term average price for the past five minutes. Finally, taking a larger number of the most recent periods, for example, with ten periods, we ...