FE570 Homework Assignment #3
Due Date: In class on November 15 (Wednesday).
Data Files: Datasets are available from the course website on Moodle.
Problem 1 Consider the daily stock price for Back of America (BAC) from
August 21, 2009 to August 20, 2010 in the le sp500hst.txt.
(1) Build a momentum trading strategy based on the Moving Average Con-
vergence/Divergence (MACD) method. Note that you need to use the
fast EMA (12 days) and the slow EMA (26 days) for this assignment.
(2) Build a momentum trading strategy based on the Relative Strength In-
dex (RSI) method. Note that you need to use N=14 days for this assign-
ment, and use overbought and oversold market parameter of 70 and 30
respectively.
(3) Compare and contrast the di erences of these two strategies. Write your
analysis and recommendation.
Problem 2 Consider the daily stock price for Alcoa (AA) from August 21,
2009 to August 20, 2010 in the le sp500hst.txt.
Note that prices presented in the dataset represent a geometric pattern,
head-and-shoulder pattern, that we have learned in the Technical Analysis
Trading Strategies section. For this assignment, you need to do the following:
(1) Write R code to identify this pattern based on the ve consecutive ex-
treme values: E1;E2;E3;E4;andE5.
(2) Compute the neckline using R code.
(3) Describe your trading strategy accordingly and compute your price ob-
jective.