Technical Analysis

Now that we picked some stocks from our dividend universe, by the way doesn’t necessarily have to be restricted to dividend stocks, we could acquire some shares and invest in them. Once bought, a buy and hold strategy could be adopted. Or alternately, one could follow some kind of strategy in the management of these shares, In other words, it can be sold, then after determining that conditions warrant it, shares could be reacquired. Some kind of definitive logic should undermine the positions one holds in such securities. This really is what is commonly referred as trading strategies, or if applied to historic data, backtesting such a trading strategy.

One would be normally be working market price data, i.e., daily prices. Of course, one could also work with fundamental data, i.e., balance sheet, income statements and so on. We will defer the fundamental analysis for later and instead concentrate on technical analysis.

As expected, there are very good R packages available and we will be using quantmod and its dependencies. Installing this will automatically install dependent packages as well, e,g, the TTR package which contains innumerable functions for coming up with various measures. We will illustrate some of these here. Another advantage of installing quantmod is that it has a function getSymbols, which can be used to get data on a real-time basis from some data providers. Provided of course, that we have either subscribed to or registered api keys with them.

There are a plethora of technical indicators available in the TTR package as documented in this reference guide TTR

Some examples of charts using quantmod. This is for symbol MMM. We will plot the prices which shows in candlestick form, and to the basic price plot, we will add Bollinger Bands, Moving Average Convergence/Divergence (MACD) as well as the ADX also known as the Directional Movement Indicator.

The quantmod package has various other options for charting, including several different color themes etc., which can all be explored at leisure.

Install packages

if(!is.element("quantmod", installed.packages()[,1]) )
 install.packages("quantmod")equire (quantmod)

# uses default theme may change via theme="white" etc., need to find hemes
chartSeries(MMM)
addBBands()
addADX()
addMACD()

basic

###   Zoom into period Oct 2017 April 2018
###   Add the EMA indicator to previous plot
zoomChart(subset='2017-10::2018-04')
addEMA()

As mentioned above, the TTR – Technical Trading Rules package is a dependency which will automatically get installed. This package has many functions for all the common indicators in use by the investment/trading community. A few of these will be illustrated below. A look at the package pdf or description will provide a good exposition of what is available. Most functions operate on just one vector usually a price vector, which could be any of Open, High, Low or Close. Some functions require 3 price vectors, for example the ADX or Directional Movement Indicator needs HLC (High, Low & Close). Some need Volume as well. Note that all of this data will automatically be downloaded by the getSymbols function.

A flavor of indicators produced shown below. These will be immensely useful in developing trading strategies.

Thanx for reading

##############################
### Moving Averages
##############################

### SMA with default period of 10 days
tail(SMA(Cl(MMM)))
SMA
2019–01–16 16:00:00 191.429
2019–01–17 16:00:00 191.883
2019–01–21 16:00:00 192.021
2019–01–22 16:00:00 192.082
2019–01–23 16:00:00 192.104
2019–01–24 16:00:00 192.334

### SMA with custom period of 28 days
tail(SMA(Cl(MMM), n=28))
SMA
2019–01–16 16:00:00 191.6079
2019–01–17 16:00:00 191.5229
2019–01–21 16:00:00 191.3064
2019–01–22 16:00:00 191.1218
2019–01–23 16:00:00 190.8614
2019–01–24 16:00:00 190.6389
#################################
#################################
### EMA (Exponential Moving Average) with default period of 10 days
> tail(EMA(Cl(MMM)))
EMA
2019–01–16 16:00:00 190.8644
2019–01–17 16:00:00 191.7727
2019–01–21 16:00:00 191.8613
2019–01–22 16:00:00 191.9392
2019–01–23 16:00:00 192.0448
2019–01–24 16:00:00 192.7458
### EMA (Exponential Moving Average) with custom period of 28 days
tail(EMA(Cl(MMM), n=28))
EMA
2019–01–16 16:00:00 192.3152
2019–01–17 16:00:00 192.5597
2019–01–21 16:00:00 192.5390
2019–01–22 16:00:00 192.5219
2019–01–23 16:00:00 192.5217
2019–01–24 16:00:00 192.7547


##############################
### MACD 
##############################
### MACD default fast=12, slow=26 days
### default is to use EMA
tail(MACD(Cl(MMM)))
macd signal
2019–01–16 16:00:00 –0.62472339 –0.8862728
2019–01–17 16:00:00 –0.37167712 –0.7833537
2019–01–21 16:00:00 –0.31919221 –0.6905214
2019–01–22 16:00:00 –0.27318515 –0.6070541
2019–01–23 16:00:00 –0.22446722 –0.5305367
2019–01–24 16:00:00 –0.04353268 –0.4331359

### MACD custom fast=14, slow=29 days; EMA
tail(MACD(Cl(MMM), nFast=14, nSlow=29))
macd signal
2019–01–16 16:00:00 –0.7531101 –0.9830809
2019–01–17 16:00:00 –0.5330926 –0.8930832
2019–01–21 16:00:00 –0.4757481 –0.8096162
2019–01–22 16:00:00 –0.4240865 –0.7325103
2019–01–23 16:00:00 –0.3705332 –0.6601148
2019–01–24 16:00:00 –0.2066794 –0.5694278

### MACD custom fast=14, slow=29 days; but using SMA instead
tail(MACD(Cl(MMM), nFast=14, nSlow=29, maType=SMA))
macd signal
2019–01–16 16:00:00 –0.70484350 –2.3024035
2019–01–17 16:00:00 –0.34131289 –1.9666689
2019–01–21 16:00:00 –0.16988862 –1.6169683
2019–01–22 16:00:00 –0.01137941 –1.2548252
2019–01–23 16:00:00 0.40502470 –0.8747751
2019–01–24 16:00:00 0.64713536 –0.5107954

##############################
### Bollinger Bands default is 20 days
##############################
### BBands default with SMA
tail(BBands(Cl(MMM), maType=SMA))
dn mavg up pctB
2019–01–16 16:00:00 182.1021 189.279 196.4559 0.6693618
2019–01–17 16:00:00 181.8455 189.574 197.3025 0.9066771
2019–01–21 16:00:00 182.0739 189.818 197.5621 0.6576677
2019–01–22 16:00:00 182.9580 190.245 197.5320 0.6403184
2019–01–23 16:00:00 185.9225 190.940 195.9575 0.6574491
2019–01–24 16:00:00 186.4435 191.422 196.4005 0.9497309

### BBands default with EMA
tail(BBands(Cl(MMM), maType=EMA))
dn mavg up pctB
2019–01–16 16:00:00 184.2810 191.4579 198.6349 0.5175615
2019–01–17 16:00:00 184.1487 191.8772 199.6057 0.7576720
2019–01–21 16:00:00 184.1695 191.9136 199.6578 0.5223634
2019–01–22 16:00:00 184.6625 191.9495 199.2365 0.5233653
2019–01–23 16:00:00 186.9863 192.0038 197.0213 0.5514391
2019–01–24 16:00:00 187.3963 192.3749 197.3534 0.8540325

##############################
### ADX default is 14 days
##############################
### ADX default with SMA
tail(ADX(HLC(MMM), maType=SMA))
DIp DIn DX ADX
2019–01–16 16:00:00 17.84749 22.60394 11.758419 16.38654
2019–01–17 16:00:00 21.88853 20.99520 2.083128 15.44425
2019–01–21 16:00:00 20.10448 22.18096 4.910626 14.69196
2019–01–22 16:00:00 18.96265 21.15753 5.470746 13.66614
2019–01–23 16:00:00 18.46098 20.59779 5.470746 12.03442
2019–01–24 16:00:00 23.46411 19.07419 10.319909 11.66226
### ADX default with EMA
tail(ADX(HLC(MMM), maType=EMA))
DIp DIn DX ADX
2019–01–16 16:00:00 17.84749 22.60394 11.758419 17.44629
2019–01–17 16:00:00 21.88853 20.99520 2.083128 15.39787
2019–01–21 16:00:00 20.10448 22.18096 4.910626 13.99957
2019–01–22 16:00:00 18.96265 21.15753 5.470746 12.86239
2019–01–23 16:00:00 18.46098 20.59779 5.470746 11.87684
2019–01–24 16:00:00 23.46411 19.07419 10.319909 11.66925

##############################
### stoch default is fastK=14, fastD=3, slowD=3 days
##############################
### stoch default with SMA
> tail(stoch(HLC(MMM), maType=SMA))
fastK fastD slowD
2019–01–16 16:00:00 0.7860963 0.6913079 0.7474000
2019–01–17 16:00:00 0.9600296 0.7779458 0.7314511
2019–01–21 16:00:00 0.6935603 0.8132287 0.7608275
2019–01–22 16:00:00 0.6957809 0.7831236 0.7914327
2019–01–23 16:00:00 0.6258438 0.6717283 0.7560269
2019–01–24 16:00:00 0.8645161 0.7287136 0.7278552

### stoch default with EMA
tail(stoch(HLC(MMM), maType=EMA))
fastK fastD slowD
2019–01–16 16:00:00 0.7860963 0.7365102 0.7421787
2019–01–17 16:00:00 0.9600296 0.8482699 0.7952243
2019–01–21 16:00:00 0.6935603 0.7709151 0.7830697
2019–01–22 16:00:00 0.6957809 0.7333480 0.7582089
2019–01–23 16:00:00 0.6258438 0.6795959 0.7189024
2019–01–24 16:00:00 0.8645161 0.7720560 0.7454792