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I was
about to send this email to "b", but I would welcome comments from anyone else
interested in such historical work.
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At the
risk of having some of you ask why it matters, my backtesting generally goes
back to 1985. Just yesterday, I posted a message to this group
saying that I always use one set of parameters across all stocks and across all
timeframes. One of the downsides of this approach (perhaps) is
that volume has changed over time. I suppose that one could argue
that volatility changes over time as well. Volatility, however, goes
through cycles and volume just keeps growing.
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The
question that I have involves volume filtering. To me, it is
essential that volume filters be applied to actual volume and not backadjusted
volume. My concern, however, is that if I apply a filter requiring an
average of 300,000 shares, I don't get very many hits back in the late 80's and
early 90's.
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I have
a solution in mind and would appreciate some input or dialogue on the
subject. It seems to me that volume filtering should
be based on some percentage of the total volume of all NYSE stocks (for
instance). I haven't done my homework yet, but let's say that the
average volume today is ten times more than it was in 1985. If I
decide to filter today at 300,000 shares, wouldn't it make sense to filter based
on 30,000 shares in 1985. I can probably answer that question myself
by saying that I don't think 30,000 would be an adequate filter in
1985. But I could scale it from 100,000 to 300,000 progressively
between 1985 and 2003 based on mathematical equation.
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You
may ask why backtesting to 1985 (or any other date) is
important. There are dozens of reasons, but the most important
reason to me is that prospective investors in any funds that I manage want to
see how a proposed system would have performed over a statistically
meaningful period of time. You can argue about the relevance of such
information, but THEY EXPECT TO SEE IT. For the record, I also think
that it is very important.
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<FONT
face=Arial color=#0000ff size=2>I welcome comments from anyone with an interest
or knowledge in this area.
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