Course Name: Data & Feature Engineering for Trading, Section No: 15, Unit No: 15, Unit type: Notebook
How would we go about adding a volatility factor to make the return threshold dynamic?
Would a rolling std be enough to use as a proxy for volatility or is there another method to do so?
Hi Anthony,
To make the return threshold dynamic, instead of using a fixed return, you can use a fixed return plus some variable component based on rolling standard deviation. It is not appropriate to say that a rolling std is enough for all use cases since different assets behave differently and you need to see what works best for you by trying out different tweaks to your strategy.
In case you want to account in volatility using price you can consider using Average true range (ATR) which is a technical indicator measuring market volatility.
Hope this helps!