My First Step into Financial Modeling: A Simple Moving Average Strategy

Strategy Implementation

Chapter 1: The Beginning of My Financial Modeling Journey

I have always been intrigued by financial markets, but I never built a financial model before. This project, titled Finance 0, marks my first attempt at creating a simple trading strategy. I'll be honest—it's not the best model out there, but it's a solid starting point. Everyone has to start somewhere, and this is mine.

Chapter 2: The Strategy – Simple Buy and Sell Signals

This method is widely used among beginner traders because it helps identify trend reversals. However, it's far from perfect and can produce many false signals, especially in sideways markets.

• When the 20-day moving average crosses above the 50-day moving average, it generates a buy signal.
• When the 20-day moving average crosses below the 50-day moving average, it generates a sell signal.

Chapter 3: Why This Model is Pretty Crappy (But Still Useful)

I won't sugarcoat it—this model has major flaws:

• Lagging indicators: Moving averages react to past price action, so signals are often delayed.
• False breakouts: In choppy markets, the strategy can lead to unnecessary trades.
• No risk management: This model doesn't incorporate stop losses or take profit levels.

Despite these issues, I see this as a learning experience. Understanding the basics of moving averages lays the groundwork for more complex financial models.

Chapter 4: Next Steps

Now that I have built a simple moving average strategy, my next focus is:

• Testing different timeframes: Applying this model on 15-minute and 4-hour charts to see how well it adapts.
• Adding risk management: Implementing stop losses and profit-taking strategies.
• Exploring different indicators: Combining this with volume analysis or RSI to reduce false signals.

This model may not be groundbreaking, but it's a crucial milestone in my journey into financial modeling.