11. Demo: Creating Indicators

Building a Performance Assessment Tool

This demonstration focuses on creating a tool to evaluate trading strategies against a benchmark, such as the S&P 500. The process involves:

• Loading Datasets: Utilize historical prices and returns, previously generated datasets, and a function library.

• Developing a Strategy Function: The function will compare strategy performance against the chosen benchmark by:

  • Computing Returns: Generate a "Position" column reflecting whether trades should go long (if RSI < 30) or remain unchanged.
  • Calculating Performance: Multiply forward returns with the position indicator to obtain returns specific to the strategy.

• Comparing to Benchmark: Plot cumulative returns side-by-side with S&P 500 returns, assess daily and compounded returns.

• Analyzing Metrics: Evaluate using metrics such as CAGR and Sharpe Ratio, comparing strategy performance with the benchmark.

The strategy currently shows fewer trades and overall performance lags behind the S&P 500. Upcoming sessions will aim to optimize trading frequency and overall performance.