For our senior capstone project, we wanted to derive a new method of trading stocks. The goal of trading stocks is to maximize one’s profits. The problem lies in which stock to buy or sell and at what time. In this project, we wanted to improve our timing by using different market indicators to help us make trading decisions and therefore always maximize our profits.
To do so, we created an automatic stock market trading algorithm that would either buy or sell a stock based on certain indicators. This method involved applying the daily CBOE Volatility Index (VIX), which measures the forward volatility of the S&P 500 index, to calculate the VIX for a certain stock. Ultimately, we created our trading algorithm using the VIX as the main indicator and four other supporting market indicators. We back-tested our trading algorithm starting at the date where we first began collecting data. This helped us determine that our strategy generated a profit for each of the sectors from February to April. After optimizing our trading algorithm, we were able to generate a greater profit for five out of the ten sectors and deeply beat the S&P 500 index benchmark. Had we had additional time to work on the project, we would have been able to collect more data and optimize our code even more to try and potentially beat the remaining five sectors.