Problem Definition
To develop a statistically proved trading strategy for unseasoned Investors that gives the signal to buy and sell the stock of IBM.
Model
?Þ This Model is based on the directional changes in the short term and long term trend lines.
?Þ It determines an ideal time to buy and sell stock of IBM.
?Þ It can be used as a decision making tool.
?Þ It is 3 step process
(1) Identification of Trend,
(2) Confirmation of Trend, and
(3) Buy & Sell Signal
Model & Methodology
?Þ Last 15 years from 1990 till 2004 historical adjusted actual prices were used to test the model
?Þ Adjusted actual day-end price and trend lines are plotted on a chart.
?Þ The direction of actual prices and trend lines is used to identify the changes in trend line.
?Þ The relative positions of the lines on the chart is used to confirm change in trend line.
?Þ Buy & Sell signal is determined once the trend is confirmed.
Trend Lines
?Þ Exponential Smoothing or Exponential Moving Averages (EMA) technique to plot the trend lines.
?Þ A technique where more weight is given to the most recent data.
?Þ A 21 day EMA line (EMA 21 line) is used as a short term trend.
?Þ A 200 day EMA line ...