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A Trend-Following Strategy in Python.
Creating a Trading Strategy in Python Based on the Aroon Oscillator and Moving Averages.
Trend-following also deserves to be studied thoroughly as many known indicators do a pretty well job in tracking trends. It is known that trend-following strategies have some structural lags in them due to the confirmation of the new trend. They are more about time in the market than timing the market. In this article, a very known indicator is presented and coded, the Aroon Oscillator. We will also combine it with moving averages and see what that gets us.
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The Aroon Oscillator
The Aroon Oscillator is created from two sub-indicators called Aroon Up and Aroon Down. They measure the trend’s strength using the highs and lows in a way that is unique and unlike other regular indicators.
The first step is to calculate the Aroon Up and Down using the following formula:
Let us look at an example on what is meant by Aroon Up and Aroon Down. Consider an asset where it has reached a new low last time period. For a 25-period Aroon Down, the value will be 96 because we will be subtracting 1 from 25, dividing it by 25 and multiplying by 100. Similarly, for a 13-period Aroon Up, where an asset has reached a new high one period ago, the Aroon Up will show a reading of 92.30.
It is understood that the higher the value of the Aroon, the stronger the trend. Now, let us code the Aroon Oscillator.
def aroon(Data, period, close, where):
# Adding Columns
Data = adder(Data, 10)…
