My Talk At The London Financial Python User Group

My Talk At The London Financial Python User Group

On Wednesday 19th March I gave a talk at the London Financial Python User Group (LFPUG) on backtesting with Python and pandas. As promised this article contains the code for the talk.

For more information on this specific example please take a look at the article on Moving Average Crossover Strategies.

The code in entirety can be found here:

import datetime
import matplotlib.pyplot as plt
import numpy as np
import pandas as pd

from abc import ABCMeta, abstractmethod
from import DataReader

class Strategy(object):
    """Strategy is an abstract base class providing an interface for
    all subsequent (inherited) trading strategies.

    The goal of a (derived) Strategy object is to output a list of signals,
    which has the form of a time series indexed pandas DataFrame.

    In this instance only a single symbol/instrument is supported."""

    __metaclass__ = ABCMeta

    def generate_signals(self):
        """An implementation is required to return the DataFrame of symbols 
        containing the signals to go long, short or hold (1, -1 or 0)."""
        raise NotImplementedError("Should implement generate_signals()!")

class MovingAverageCrossStrategy(Strategy):
    symbol - A stock symbol on which to form a strategy on.
    bars - A DataFrame of bars for the above symbol.
    short_window - Lookback period for short moving average.
    long_window - Lookback period for long moving average."""

    def __init__(self, symbol, bars, short_window=100, long_window=400):
        self.symbol = symbol
        self.bars = bars

        self.short_window = short_window
        self.long_window = long_window

    def generate_signals(self):
        """Returns the DataFrame of symbols containing the signals
        to go long, short or hold (1, -1 or 0)."""
        signals = pd.DataFrame(index=self.bars.index)
        signals['signal'] = 0.0

        # Create the set of short and long simple moving averages over the 
        # respective periods
        signals['short_mavg'] = pd.rolling_mean(bars['Close'], self.short_window, min_periods=1)
        signals['long_mavg'] = pd.rolling_mean(bars['Close'], self.long_window, min_periods=1)

        # Create a 'signal' (invested or not invested) when the short moving average crosses the long
        # moving average, but only for the period greater than the shortest moving average window
        signals['signal'][self.short_window:] = np.where(signals['short_mavg'][self.short_window:] 
            > signals['long_mavg'][self.short_window:], 1.0, 0.0)   
        # Take the difference of the signals in order to generate actual trading orders
        signals['positions'] = signals['signal'].diff()
        return signals
class Portfolio(object):
    """An abstract base class representing a portfolio of 
    positions (including both instruments and cash), determined
    on the basis of a set of signals provided by a Strategy."""

    __metaclass__ = ABCMeta

    def generate_positions(self):
        """Provides the logic to determine how the portfolio 
        positions are allocated on the basis of forecasting
        signals and available cash."""
        raise NotImplementedError("Should implement generate_positions()!")

    def backtest_portfolio(self):
        """Provides the logic to generate the trading orders
        and subsequent equity curve (i.e. growth of total equity),
        as a sum of holdings and cash, and the bar-period returns
        associated with this curve based on the 'positions' DataFrame.

        Produces a portfolio object that can be examined by 
        other classes/functions."""
        raise NotImplementedError("Should implement backtest_portfolio()!")
class MarketOnClosePortfolio(Portfolio):
    """Encapsulates the notion of a portfolio of positions based
    on a set of signals as provided by a Strategy.

    symbol - A stock symbol which forms the basis of the portfolio.
    bars - A DataFrame of bars for a symbol set.
    signals - A pandas DataFrame of signals (1, 0, -1) for each symbol.
    initial_capital - The amount in cash at the start of the portfolio."""

    def __init__(self, symbol, bars, signals, initial_capital=100000.0):
        self.symbol = symbol        
        self.bars = bars
        self.signals = signals
        self.initial_capital = float(initial_capital)
        self.positions = self.generate_positions()
    def generate_positions(self):
        positions = pd.DataFrame(index=signals.index).fillna(0.0)
        positions[self.symbol] = 100*signals['signal']   # This strategy buys 100 shares
        return positions
    def backtest_portfolio(self):
        portfolio = self.positions*self.bars['Adj Close']
        pos_diff = self.positions.diff()

        portfolio['holdings'] = (self.positions*self.bars['Adj Close']).sum(axis=1)
        portfolio['cash'] = self.initial_capital - (pos_diff*self.bars['Adj Close']).sum(axis=1).cumsum()

        portfolio['total'] = portfolio['cash'] + portfolio['holdings']
        portfolio['returns'] = portfolio['total'].pct_change()
        return portfolio
if __name__ == "__main__":
    # Obtain daily bars of AMZN from Yahoo Finance for the period
    # 1st Jan 2009 to 1st Jan 2014
    symbol = 'AMZN'
    bars = DataReader(symbol, "yahoo", datetime.datetime(2009,1,1), datetime.datetime(2014,1,1))

    # Create a Moving Average Cross Strategy instance 
    # with short and long moving average windows
    mac = MovingAverageCrossStrategy(symbol, bars, short_window=40, long_window=100)
    signals = mac.generate_signals()

    # Create a portfolio of AMZN, with $100,000 initial capital
    portfolio = MarketOnClosePortfolio(symbol, bars, signals, initial_capital=100000.0)
    returns = portfolio.backtest_portfolio()

    # Plot two charts to assess trades and equity curve
    fig = plt.figure()
    fig.patch.set_facecolor('white')     # Set the outer colour to white
    ax1 = fig.add_subplot(211,  ylabel='Price in $')
    # Plot the AMZN closing price overlaid with the moving averages
    bars['Close'].plot(ax=ax1, color='r', lw=2.)
    signals[['short_mavg', 'long_mavg']].plot(ax=ax1, lw=2.)

    # Plot the "buy" trades against AMZN
    ax1.plot(signals.ix[signals.positions == 1.0].index, 
             signals.short_mavg[signals.positions == 1.0],
             '^', markersize=10, color='m')

    # Plot the "sell" trades against AMZN
    ax1.plot(signals.ix[signals.positions == -1.0].index, 
             signals.short_mavg[signals.positions == -1.0],
             'v', markersize=10, color='k')

    # Plot the equity curve in dollars
    ax2 = fig.add_subplot(212, ylabel='Portfolio value in $')
    returns['total'].plot(ax=ax2, lw=2.)

    # Plot the "buy" and "sell" trades against the equity curve
    ax2.plot(returns.ix[signals.positions == 1.0].index, 
   [signals.positions == 1.0],
             '^', markersize=10, color='m')
    ax2.plot(returns.ix[signals.positions == -1.0].index, 
   [signals.positions == -1.0],
             'v', markersize=10, color='k')

    # Plot the figure