Building Automated Trading Strategies October 2018 | Page 15

Common Modules for Creating Forecasting Indicators:
These are some common forecasting modules:
1. Intermarket Correlations (correlations between different markets)
2. Volume Clustering (important changes in trading volumes can predict
upcoming price movements)
3. Imbalances of Demand/Supply (changes in the volume of orders on
one side may forecast upcoming price movements)
4. Asset Pricing Inefficiencies (comparing asset pricing to linked variables
-such is the sectoral indexes for shares)
5. News Effect (the market’s reaction to news may create a predictable
pattern)
Tools for Creating and Optimizing Algorithmic Trading Systems
These are some tools for building an algorithmic signaling machine:
• Pattern Recognition (machine learning)
• Order/Volume Breakout Analysis
• Time Series Analysis
• Intermarket Correlations Analysis
• Market Sentiment Measures (data mining metrics of
positivity/negativity of the language used in particular entities or
events)
• Historical Backtesting
• Monte-Carlo Simulation (using random sampling to solve deterministic
problems)
• Hamilton–Jacobi–Bellman (HJB) Equation (central to optimal control
theory)
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