Financial Planning And Forecasting For Trading Simulation

Discussing the Experience, which Might be Generated from Simulation Trading

Discuss about the Financial Planning and Forecasting for Trading Simulation.

The assessment mainly evaluates a trading simulation, which helps in understanding the concepts of risk and return. The experience of the simulation trading mainly allows the investors to understand the implication of a successful trading strategy, which might help in generating higher revenue. The psychological battle in choosing the right instrument for the portfolio is mainly discussed in the study. The use technical or fundamental analysis for the short duration trade could be evaluated in the study to understand the current momentum of share prices. Lastly, the discussion is conducted to understand the overall results of simulated trading, which help in depicting the overall decisions taken during the trading period.   

The trading simulation was mainly conducted to reduce the emotional challenge, which is faced by investors during the trading period. However, the simulation was mainly conducted to help investor understated the development in the short-term price movement of shares. Biondo et al. (2013) mentioned that market hypothesise during the short-term trading scenario is relatively high as the investors tries to discount the share price and identify the exact value of the trade. In this contest, Cartea and Jaimungal (2015) further stated that with the help of technical analysis investors are able to detect the short-term momentum of the shares and increase the return from investment.

The trading simulation has mainly helped in increasing the experience of the investors regarding the change in price movement duo to the impact of news. The simulation also helps in understanding the significance of price movement over three weeks, which could be used as an effective entry point. However, the simulated trading also helped in understanding the significance of not gaoling against the trend. Hoffman (2014) stated that short-term investors mainly rely on share price trend, which could be identified from charts and minimising the risk from investment. On the contrary, Chou, Wang and Wang (2015) criticises that investors with low capital capacity are not able to comprehend the change in market scenario and book loses from the trade. The trades conducted in the simulation are mainly focused on short-term news, which might not help in getting high-end profits from trade. Furthermore, expectation of rise and dines in share price is mainly depicted from the news, which is related to the overall stocks. However, the simulation trading system does not comprehend the volatility and risk, which is generated from capital market. The investment and selection of stocks is mainly conducted based on the single price movement, which reduced the profits that might be generated from investment.

Reviewing the Trading Psychology of the Overall Simulation Trading

The main trading psychology of investors is to achieve high return from their investment. In addition, the simulation mainly states the trade strategy, which is been used in the program for generating high returns. The news is used to identifying stocks, whose prices might increase in new future. Moreover, a technical strategy is also adopted where the large movement of stock prices is identified as an entry point. The DBS group was mainly selected as there was a huge decline in prices was identified in the previous week. Kandel, Rindi and Bosetti (2012) argued that selecting stocks based only on price movement might increase risk of investors and reduce the retune, which might be generated from investment.  

The trade conducted in the simulation is mainly related to news and price movement that is been used by the investor during the simulation period. The relative impact in the trading decision are effectively stated as bellow  

Shares of Sembcorp Marin, UOB, OCBC and SIA is mainly purchased on the relative news, which is been depicted by the company. In addition, the news mainly helped the investors to buy the shares of above depicted company. However, the news also instigated on selling the shares of companies, which was bought due to the buy signal provided by fundamental analysis. Narayan et al. (2015) mentioned that speculators in the stock market mainly rely on information provided by companies to take short-term investment decision.  

Stocks that were purchased based on price movement are Singtel, Thaibev, DBS Shares, Venture Corporation, Singapore Post Limited, and SATS shares. In addition, the price movement mainly helped in understanding the entry point, which might improve the return from investment. However, the entries conducted from price evaluation were dropped due to the negative news encircling the company’s operations Neely and Weller (2013). After the evaluation of the trading simulation, it could be derived that no significant technical or fundamental analysis was conducted.   

Figure 1: Depicting the change in trading price

(Source: as created by the author)

Figure 1 specifies the risk profile of the investor, which does not allow the share price to reduce more than 2% of the investment price. The risk profile of an investor mainly reflects the trading strategy, which helps in reducing losses conducted from trading operations. However, the risk profile used in the trading simulation mainly allowed the investor to reduce the losses, which might have incurred from trading (Nuij et al. 2014). The losses incurred during the simulation secession are not more than 1.75%, which effectively support the overall risk profile of the investor.

Stating the Information that Effected the Trading Decision

Technical analysis is mainly used as the preference trading strategy in the trading simulation. In addition, with the help of technical analysis stocks that have attained higher high and significant lows in previous week is mainly identified. Moreover, the identification of the stock mainly helped in depicting the adequate entry point, which might help in generating higher return from investment. Simon and Campasano (2014) mentioned that using technical analysis mainly allows investors to reduce the short-term risk, which is depicted from the volatility of the capital market. It is mainly observed that decline in share price allows investors with a buying opportunity for short-term, which could be used as an effective entry point.  The trading simulation also accommodates any news, which is been circulating the invested companies operations. The circulation of news mainly helped in depicting the volatility in price movement, which might be hindering the overall profitability from trading.      

The trading instruments that is been used in the simulation has been identified from relative news and price movement of stocks. In addition, the decision for selling the stocks is mainly identified from news, as some events caused the investors to panic and exit their position. However, the exit entry has been very successful in reducing the loses and achieve high profitability from investment. In addition, during the end the stocks that were bought in trading simulation have some kind of positive news associated with their movement. Lambert, Papageorgiou and Platania (2016) mentioned that investors mainly rely on positive news for their short-term purchases. On the contrary, Chou, Wang and Wang (2015) argued that without adequate risk determination the overall investment loss might increase, which in turn could hamper investment capital.

Figure 2: Depicting the change in bank balance

(Source: as created by the author)

With the help of figure 2, the overall change in bank balance could be evaluated. However, the losses and profits is effectively added in the bank balance to depict the accurate change in profit incurred during the trading secession. From 26^th September till 10^th October relative change investment has not been conducted as opportunity was not discounted. However, after 12^th October relative decrease in capital and increase in investment is conducted, which helped in increasing the overall profits. Moreover, a loss of only $700 and $150 is incurred in the trading simulation. Cartea and Jaimungal (2015) mentioned that investors with the help of CAPM level are able to detect the overall risk, which might influence the return generation capacity of the investment. However, Kandel, Rindi and Bosetti (2012) argued that investors are more dependent on stock, which provide high dividend and does not accommodate the risk involved in investment. Furthermore, an income of $14,666 is mainly generated from the trading simulation, which depicts the effective trading conducted by the investor. In addition, the overall portfolio return is at 4.9%, which is generated from 46 days of trading secession including holidays. This return mainly indicates the viability of the trading strategy adopted in the trading secession,    

Conclusion:

The overall study mainly helps in understanding the significance of trading strategies and relative impact of news on share price movement of companies. The overall significance of relative trading system mainly helps in reducing the relative risk from investment. In addition, fundamental and technical analysis is mainly used in the simulation for deriving the profitability from investments. Furthermore, the depiction of accurate trading psychology and strategy is relatively conducted to understand the trading emotions of traders. Moreover, relative change in profits and bank balance, which is depicted from the trading simulation is effectively stated in study. Relative profits have been generated from stocks, whose positive news is been announced during the trading simulation.

Reference:

Biondo, A.E., Pluchino, A., Rapisarda, A. and Helbing, D., 2013. Are random trading strategies more successful than technical ones?. PloS one, 8(7), p.e68344.

Cartea, Á. and Jaimungal, S., 2015. Risk Metrics And Fine Tuning Of High?Frequency Trading Strategies. Mathematical Finance, 25(3), pp.576-611.

Chou, R.K., Wang, G.H. and Wang, Y.Y., 2015. The impacts of individual day trading strategies on market liquidity and volatility: Evidence from the Taiwan Index Futures Market. Journal of Futures Markets, 35(5), pp.399-425.

Hoffman, R., 2014. Don’t Miss Rob’s Day Trading & Futures Trading Event.

Kandel, E., Rindi, B. and Bosetti, L., 2012. The effect of a closing call auction on market quality and trading strategies. Journal of Financial Intermediation, 21(1), pp.23-49.

Lambert, M., Papageorgiou, N.A. and Platania, F., 2016. Market Efficiency and Hedge Fund Trading Strategies.

Narayan, P.K., Ahmed, H.A. and Narayan, S., 2015. Do Momentum?Based Trading Strategies Work in the Commodity Futures Markets?. Journal of Futures Markets, 35(9), pp.868-891.

Neely, C.J. and Weller, P.A., 2013. Lessons from the evolution of foreign exchange trading strategies. Journal of Banking & Finance, 37(10), pp.3783-3798.

Nuij, W., Milea, V., Hogenboom, F., Frasincar, F. and Kaymak, U., 2014. An automated framework for incorporating news into stock trading strategies. IEEE transactions on knowledge and data engineering, 26(4), pp.823-835.

Simon, D.P. and Campasano, J., 2014. The vix futures basis: Evidence and trading strategies. The Journal of Derivatives, 21(3), pp.54-69.