Identifying Buying and Selling Signals
Using Moving Average Crossover and Bolling Bands
Import stock prices
Moving Average Crossover
Bollinger Bands
How to interpret moving average crossover
- bullish crossover if the 50-day MA cross above the 200-day MA
- bearish crossover if the 50-day MA cross below the 200-day MA
How to interpret bollinger bands
- If the stock price is right around the upper band, the stock may be considered overbought
- If the stock price is right around the lower band, the stock may be considered oversold
Q1 Import S&P 500 Index.
Q2 Filter for the period between 2018-01-01 and 2018-11-28. Do this for both plots: the moving average crossover and the Bollinger Bands.
Done
Q3 The stock market plummeted since its October high. If you followed the moving average crossover blindly, what should you have done since the last October? Buy or sell?
Since October the 50 day moving average is heading towards the 200 day moving average. Because it is likely to cross it and be a bearish crossover, I would have SOLD the stocks at October high.
Q4 If you followed the Bollinger Bands instead, what should you have done since the last October? Buy or sell?
If you were to follow the Bollinger Bands, the stock prices touch the lower band and the stock prices could be considered oversold. In light of this and the fact that S&P 500 is such a strong and reliable stock and is unlikely to crash I would BUY stocks.
Q5 How effective is the Bollinger Bands? For example, would you have made profits by following the Bollinger Bands since the beginning of 2018? Explain.
If you bought the stocks in January, you would keep them until mid-may when the stock prices hit the upper band. Then when it hits the lower in July, I would buy stocks. Then finally sell in October at its high, finally purchasing again at the end of November. By following the bollinger bands like this, it would end in a profitable year.
Q6 Which of the two appears to be more appropriate for short-term?
The Moving averages seem to be rather ineffective in displaying the stock prices general direction. As we can not see a crossover it does not explicitly indicate a place to buy or sell the stocks. On the other hand, Bollinger bands are more precise and give us multiple buy/sell points that if followed would produce a profitable year.
Q7 Construct the Bollinger Band plot of the NASDAQ Composite Index for the same period. Do this by copying and pasting the necessary code from the above. Would you have made profits by following the BB since the beginning of 2018?
Bollinger Bands
You still would have made money if you followed the Bollinger Bands as they still hit the upper and lower bands.
Q8 (Continued from Q7) What would you consider changing to make it more effective?
Look back at further to get a great grasp of the trends of the data.I would change the bands from 2 standard deviations from the mean to 3. This would make it better profits because you would have less points crossing the bands and higher selling points and lower buying points increasing profits.