Investment Thesis

Introduction

This thesis outlines the development and implementation of an Exponential Moving Average (EMA) based trading strategy applied to the stocks in the S&P 500 index. The strategy combines multiple EMAs and the Relative Strength Index (RSI) to generate buy and sell signals, ensuring robust decision-making in trading activities.

Strategy Overview

Objective

The primary objective of the EMA Moving Average Strategy is to capture significant upward and downward trends in stock prices by using a combination of short-term and long-term EMAs. This strategy aims to enter trades at the beginning of a strong trend and exit when the trend shows signs of reversal or weakening momentum.


Buy Condition: A buy signal occurs when:

  • EMAs follow the order: EMA (9 > 15 > 65 > 150).
  • Closing price is above the 35-period  EMA for at least 75% of the last 60 periods, indicating an upward trend.

Sell Condition: A sell signal occurs when:

  • EMAs follow the order: EMA (9 < 15 < 65 < 150).
  • Closing price is below the 35-period EMA for at least 75% of the last 60 periods, indicating a downward trend.

Exit Conditions

After Buying:

  • Liquidate if the 9-period or 15-period EMA crosses below the 65-period EMA.
  • Liquidate if the RSI drops below 40 show weakness.

After Selling:

  • Liquidate if the 9-period or 15-period EMA crosses above the 65-period EMA.
  • Liquidate if the RSI rises above 60 show strength.