One thing that many traders do is look at multiple signals in conjunction with one another. If all the signals indicate the same thing, they are often more likely to be correct.
Here's an example using three signals generated from TA-Lib. I want this post to serve a couple purposes — introducing the strategy and showing how to use the talib module.
This strategy takes a chunk of stocks, and for each stock, it looks at three signals. If all the signals for a stock are in agreement about whether it is overbought or underbought, then we go short or long. The three signals we use are:
- Money flow index
- Commodity channel index
- Chande momentum oscillator
You can see the thresholds I use and other variables, like time period and the universe size, in the source code. Since the "ta." notation is being deprecated, using functions from the talib module is better.
Interestingly enough, the strategy does very well from about 2002 - 2009. After that, it mostly trends around the benchmark. I wonder if there is a good reason why it did so well for a while then slowed down (the backtest below is run from 2004 - 2006). Feel free to clone the algorithm and adjust it. Also try using other functions from TA-Lib as signals, specifically have a look at the various oscillators.
