Adding leverage in manual backtesting

Quant Trading Strategies & Ideas
1

On the course, getting started with algotrading, a moving average cross over strategy was discussed and also how to check performance. I want to get an insight of how to add  (e.g 5X, 10X) so that the metrics (cumulative return) would be more realistic if one chooses to trade with leverage

2

Hello Obimba,



So in section 9 unit 6 we have a notebook to create this strategy. 



In cell 7, we have the following code:

 

# Calculate the returns by multiplying the signal with daily price change
returns = data['signal']*data['Adj Close'].pct_change()

You can set whatever leverage you want to incorporate to it. You just need to do the following change:

 

# Calculate the returns by multiplying the signal with daily price change
returns = data['signal']*data['Adj Close'].pct_change()*leverage

Where leverage can be 2, 5, or 10, etc.



When you want to create the cumulative returns, you just apply the same code you have in cell 9:

 

cumret = (returns+1).cumprod()

So, as you see, the only change is made in the returns code.



I hope this helps,



Thanks and regards,



José Carlos