BackAlpha
Copyright © 2025 Tyler Liu
All rights reserved.
First Edition, April 2025
Disclaimer
Foreword
Preface
Acknowledgments
Contents
I Fundamentals of Stock Trading
1 Introduction to Stock Trading
1.1 What are stocks?
1.2 Understanding Stock Markets
1.3 Why trade stocks?
1.4 Types of trading: Long-term investing vs. trading
1.5 Understanding risk
1.6 Stock Trading vs. Other Types of Investments
2 Getting Started with Stock Trading
2.1 Setting up a brokerage account
2.2 How to place a trade
2.3 Key terminologies
2.4 Risk management basics
3 Introduction to ETFs and SPY
3.1 What are ETFs?
3.2 SPY: Overview and Historical Significance
3.3 SPY: Performance Over Time
3.4 Benefits of Trading SPY
3.5 SPY vs. Other ETFs
4 Understanding Trends and Indicators
4.1 What are Market Trends?
4.2 Identifying Bullish and Bearish Trends
4.3 Importance of Indicators in Trading
4.4 Common Indicators: Volume, RSI, MACD, etc.
4.5 Limitations of Indicators
5 Introduction to Moving Averages
5.1 What is a moving average?
5.2 Simple Moving Average (SMA) explained
5.3 Exponential Moving Average (EMA) explained
5.4 Comparing SMA and EMA: Pros and Cons
5.5 Other types of moving averages
6 Trading with Moving Averages
6.1 How moving averages identify trends
6.2 Golden Cross and Death Cross
6.3 Using Multiple Moving Averages
6.4 Practical examples of moving average strategies
7 Fundamentals of Options Trading
7.1 Why trade options? A preview of power and risk
7.2 Understanding call and put options
7.3 Intrinsic value and time value explained
7.4 Getting started with options trading
7.5 Broker permissions: enabling options on Robinhood
8 Leverage and Call Options
8.1 What is leverage and how it magnifies returns
8.2 Risks associated with leverage
8.3 How Strike Price Determines Leverage Level
8.4 Understanding time value and expiration decay
8.5 Using Long-Term Deep ITM Call Options
II Building Data-Driven Trading Strategies
9 Introduction to Backtesting
9.1 What is Backtesting?
9.2 A First Example: Testing a SMA Strategy
9.3 A Philosophy of Realism and Conservative Assumptions
9.4 Roadmap for This Part
10 Preparing Historical Market Data
10.1 Getting the Data
10.2 Understanding the Dataset Structure
10.3 When to Use Close vs. Adjusted Close
10.4 Why Daily Data?
10.5 Preprocessing the Data
10.6 What Comes Next
11 Buy and Hold: The Baseline Strategy
11.1 Introduction to Buy and Hold
11.2 SPY Buy-and-Hold Backtest
11.3 QQQ Buy-and-Hold Comparison
11.4 SPY vs. QQQ: Which Is Better?
11.5 Common Misconceptions
11.6 Why This Strategy Matters
12 Dollar Cost Averaging: A Smoother Path Through Volatility
12.1 How Dollar Cost Averaging Works
12.2 SPY DCA Backtest Results (1993–2025)
12.3 Why We Use XIRR (Not Just Gain)
12.4 Drawdowns and Investor Experience
12.5 Risk-Adjusted Return: Calmar Ratio
12.6 Buy and Hold vs. DCA: Which Is Better?
12.7 Behavioral Edge: Why DCA Is Easier to Stick With
12.8 DCA Isn’t Always the Right Answer
12.9 Final Thoughts
13 The Golden Cross and Death Cross Strategy
13.1 The Strategy
13.2 Backtest Performance
13.3 Execution History
13.4 Drawdown Profile
13.5 Analysis and Tradeoffs
13.6 Why Use This Strategy?
13.7 Final Thoughts
Additional Resources
.1 BackAlpha.com
.2 Other Free Resources