Beginner's Guide To Algo Trading in Python
Beginner's Guide To Algo Trading in Python
Table of Contents
1
Why Python? 4
Why Backtrader? 4
8. A Minimal IDE/Editor? 7
You’re Ready! 8
Try It Out! 10
4. Visualizing Results 13
5. Tweaking Parameters 14
What Next? 14
Optimizing Strategies 16
What Now? 17
Congratulations! 18
Chapter 1: Introduction – Why Python & Backtrader? 4
• Backtesting: You can see how your idea worked in the past—before risking real
money.
• Speed and consistency: Code follows your rules, every single time.
Why Python?
• Beginner-friendly: The code is readable, and there are tons of tutorials.
• Popular for finance: Used by banks, hedge funds, quants, and students alike.
• Libraries galore: For trading, statistics, plotting, and machine learning (like pandas,
numpy, matplotlib, scikit-learn, and more).
• Strong community: It’s easy to find help and working code examples.
Why Backtrader?
Backtrader is a free, open-source Python framework designed to make strategy
development, backtesting, and even live trading as easy as possible.
What makes Backtrader awesome?
• Simple and powerful: You can get started with just a few lines, but it’s powerful
enough for pros.
• Flexible data sources: Works with CSVs, Yahoo Finance, live brokers, and more.
• Code your first trading strategy (e.g., a simple moving average crossover)
• Install Python:
o Download here
o During installation, check the box that says “Add Python to PATH”
• Activate it:
o Windows: venv\Scripts\activate
o Mac/Linux: source venv/bin/activate
8. A Minimal IDE/Editor?
• Best for beginners:
o VS Code
o Thonny
o Jupyter Notebook for interactive coding
Chapter 2: Getting Ready—Python, Backtrader, and Data in 15 Minutes 8
You’re Ready!
• You’ve installed Python and Backtrader
• You have sample data ready
• You’re set up to code and test your first strategy
Next up: We’ll walk you through the anatomy of a Backtrader script—and code your first
trading strategy.
Chapter 3: Backtrader in Action – Anatomy of a Simple Strategy 9
def next(self):
# If not in the market, buy if price > SMA
if not self.position and self.data.close[0] > self.sma[0]:
self.buy()
# If in the market, sell if price < SMA
elif self.position and self.data.close[0] < self.sma[0]:
self.sell()
• Data Feed: Uses the AAPL.csv file you downloaded. (You can swap in other stocks
or assets—just download a new CSV!)
• Plot: After the backtest, it automatically pops up a chart showing price, SMA, and
your trades.
Try It Out!
• Change the period=20 to 10, 50, etc. See how it affects trading.
Chapter 3: Backtrader in Action – Anatomy of a Simple Strategy 11
• Try with another ticker (download a new CSV, change the filename).
• Adjust starting capital (set_cash) or add a commission (see next chapter).
• Load data
• Define your rules
• See how it would have worked
• Repeat and improve
You can check out chapter 1 of “Backtrader Essentials” for to learn more about: -
Importing necessary libraries. - Downloading historical data using yfinance. - Converting
the data into a backtrader feed using bt.feeds.PandasData. - Initializing the Cerebro
engine and configuring the broker (cash, commission). - Defining and adding a minimal
bt.Strategy. - Running the backtest with cerebro.run(). - Visualizing the results with
cerebro.plot().
Next up: We’ll show you how to customize, add indicators, and tweak your strategy for
better control.
Chapter 4: Build, Tweak, and Experiment – Your First Real Strategy 12
Now that you’ve seen a working SMA crossover, let’s step-by-step build your own trading
strategy and explore how to customize it.
class SmaCrossMulti(bt.Strategy):
params = (('fast_period', 10), ('slow_period', 30))
def __init__(self):
self.fast_sma = bt.ind.SMA(period=self.p.fast_period)
self.slow_sma = bt.ind.SMA(period=self.p.slow_period)
def next(self):
# Buy: fast SMA crosses above slow SMA
if not self.position and self.fast_sma[0] > self.slow_sma[0] and
self.fast_sma[-1] <= self.slow_sma[-1]:
self.buy()
# Sell: fast SMA crosses below slow SMA
elif self.position and self.fast_sma[0] < self.slow_sma[0] and
self.fast_sma[-1] >= self.slow_sma[-1]:
self.sell()
Chapter 4: Build, Tweak, and Experiment – Your First Real Strategy 13
class SmaCrossMulti(bt.Strategy):
params = (('fast_period', 10), ('slow_period', 30))
def __init__(self):
self.fast_sma = bt.ind.SMA(period=self.p.fast_period)
self.slow_sma = bt.ind.SMA(period=self.p.slow_period)
def next(self):
if not self.position and self.fast_sma[0] > self.slow_sma[0] and
self.fast_sma[-1] <= self.slow_sma[-1]:
self.buy()
elif self.position and self.fast_sma[0] < self.slow_sma[0] and
self.fast_sma[-1] >= self.slow_sma[-1]:
self.sell()
cerebro = bt.Cerebro()
data = bt.feeds.YahooFinanceCSVData(dataname='AAPL.csv') # or use
YahooFinanceData as above
cerebro.adddata(data)
cerebro.addstrategy(SmaCrossMulti, fast_period=10, slow_period=30)
cerebro.broker.set_cash(10000)
cerebro.run()
cerebro.plot()
4. Visualizing Results
• The cerebro.plot() line gives you an interactive chart.
• Buy/sell arrows will appear—mouse over them for details.
Chapter 4: Build, Tweak, and Experiment – Your First Real Strategy 14
5. Tweaking Parameters
Change fast_period, slow_period, or even the ticker symbol. Try running multiple
strategies with different parameters by calling addstrategy multiple times (advanced).
What Next?
You’ve now:
def next(self):
if not self.position and self.rsi < 30:
self.buy() # Oversold, go long
elif self.position and self.rsi > 70:
self.sell() # Overbought, exit
Optimizing Strategies
• Parameter sweeps: Backtrader lets you optimize easily:
• Performance analyzers: Add analyzers for drawdown, Sharpe ratio, and more:
cerebro.addanalyzer(bt.analyzers.SharpeRatio)
# Set commission
cerebro.broker.setcommission(commission=0.001)
What Now?
You’re already ahead of most beginners!
Chapter 5: Next Steps & Your Quick Reference Cheatsheet 18
Congratulations!
You’ve just completed your first algorithmic trading mini bootcamp, in record time.