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Chuck,
For simplicity and understanding why not just post the .png of the
equity curve generated by PT, i.e. the first two columns of the
account file preferably plotted on a log scale
Fred
--- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher"
<chuck_rademacher@x> wrote:
> Wow, b....
>
> Granted, I just got up, but I'm overwhelmed by your reply. I
haven't even
> had my first cuppa yet!!
>
> There are no "penny" stocks, unless you call a stock that traded
above $1 a
> penny stock.
>
> I would have thought that the trade listing that I posted for DT
answered
> all of your questions, but I will endeavour to explain.
>
> The equity curve is actually a "profit" curve. I used the
word "equity"
> because everyone else does. It shows the cummulative profit/loss
for each
> trade.
>
> I generate this profit curve by:
>
> 1. Setting the initial capital in the account for each stock to
500,000 (an
> inflated figure that doesn't come into play).
> 2. The system trades 50,000 per trade and doesn't worry about
running out
> of money.
> 3. The syntax for my composite is: AddToComposite (Equity()-
500000,
> "~Composite", "X", 7);
>
> There is no cummulative effect of thousands of stocks being in the
basket.
> The profit/loss from each trade is added/subtracted and then the
stock is
> forgotten.
>
> The system uses the VLIC for timing only. It does not trade the
VLIC. The
> system certainly does not just buy all stocks when the trend is
up. There
> is system logic that I have not supplied. I have said that it
uses an
> "oversold" indicator for each stock. A stock must at least $1
(actual
> price) on the day, can't be above $15 and must have a reasonable
average
> turnover in order to be considered. Then, it must also
be "oversold".
> You may see prices in the trade listing that are outside of the $1
to $15
> range. Remember, that the filter is based on the actual price on
the day
> and the trade is being calculated based on the backadjusted price.
>
> There is additional logic that decides that the signal is only
valid for a
> few days. It has a "use by date".
>
> When the market timing signal reverses (goes down), individual
stocks are
> sold if they are going down. If an individual stock continues to
go up, it
> is held until it starts to go down.
>
> This is why yoiu will see stocks being bought a few (secret?) days
after the
> trend turns up and sold a few (secret?) days after the trend turns
down.
>
> Other reasons for a stock being sold are the 40% stop loss or if it
ceases
> trading. Remember, my database has extinct stocks. These show
up in the
> trade listing with symbols like ~UNIV, ~LAC, etc.
>
> The trade listing shows that the system bought 124 stocks based on
the buy
> signal that was generated on 26 December, 2000. It started buying
on the
> 27th.
>
> You can see that some more stocks were bought over the next few
days. This
> is part of the logic of my trading system, not the timing system.
Pretty
> soon, I will have specified the entire system in my positings.
>
> The exit signal was generated on the 8th of February, 2001 and the
system
> started dumping the entire basket on the 9th. It took a few days
to unload
> the entire basket, again based on the system logic.
>
> I hope that I have covered all of your issues, but I'm happy to
delve
> further.
> -----Original Message-----
> From: b519b [mailto:b519b@x...]
> Sent: Friday, June 20, 2003 7:50 AM
> To: amibroker@xxxxxxxxxxxxxxx
> Subject: [amibroker] Re: Longterm equity chart (3 possible cuases
for Jan
> 2001 jump)
>
>
> Chuck,
>
> Your explanation for the huge spike in Jan 2001 makes sense -
that a
> there was larger number than normal of stocks that qualified as
> being beaten down - likely due to tax loss selling in Dec 2000.
>
> However, this explanation (or my interpretation of it) raises a
> question about the equity curve's significance.
>
> I see three possible explanations. I think the third is the most
> likely, but I want to mention the other two first so you can
confirm
> whether or not they are factors.
>
> HYPOTHESIS ONE
> Your system began to trade penny stocks in late Dec 2000 or early
> Jan 2001. Penny stocks can have periods of huge gains of 70% or
more
> (and can have similar losses!)
>
> Although I expect your system has a minimum price that excludes
> penny stocks, I thought I better ask just in case.
>
> HYPOTHESIS TWO
> Let's say by Dec 2000, the system has generated a cumulative total
> of 1,000 stocks it had traded. This number is important if I
> understand the way the equity curve is generated. Because your
> inactive stocks are padded out to the present for the sake of the
> equity curve, that implies that once a stock gets added to the
> equity curve, it remains part of that curve to the end, even if it
> never trades again.
>
> So, the jump in the equity curve in Jan 2001 could simply being
the
> fact that a disporportionate number of new stocks qualified for
> being part of the equity curve for the first time. If 700 new
stocks
> qualified, that would account for the jump of 70% even if those
new
> stocks were not profitable.
>
> Or perhaps (I would guess probably) you have already compensated
for
> this by subtracting the initial equity give to a stock before that
> stock's own equity curve to the cumulative equity curve, or
should I
> say "profit" curve. Something makes me think that you probably
have
> done this compensation step. If so, we need to go to hypothesis
> three.
>
> HYPOTHESIS THREE
> In anticipation of a reply that the chart is a "profit" report,
what
> I think has caused the jump in January 2001 is that a large number
> of new stocks has added a large amount of modest profit all at
once.
>
> I am up early this morning (about 4 hours of shut eye) so my ideas
> as well as words may be a bit fuzzy. Perhaps an illustration will
> help.
>
> Let's suppose that the "profit" curve is based on the profit of
> about 1,000 stocks by Dec 2000. Let's also assume the total
> accumulated profit is about $4,000,000 by Dec 2000. Let's also
> assume that there was a much larger number than normal of new
stocks
> meeting the beaten down requirement of your system - perhaps due
to
> tax loss selling in December. Let's say 1,000 new stocks got added
> to the stocks already part of the profit curve. Assuming the that
> Jan 2001 entry (maybe it was a very late 2000 entry - same
result),
> was moderately profitable with an average gain of $3,000 for each
> $50,000 position (that would be same as the average $3,000 you
> report). Those 1,000 new stocks times 3,000 would add $3,000,000
to
> the profit curve.
>
> Thus, the jump in the profit curve of 70% could be caused by the
> total number of stocks being traded increasing by 70% even though
> they only made a modest, average profit on that trade signal. Is
> this hypothesis, or a variation of it, possible?
>
> b
>
> --- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher"
> <chuck_rademacher@x> wrote:
> > VLIC is the Value Line Geometric Index. I only came across it
by
> accident,
> > but it makes an excellent overall market timing vehicle. If you
> care to run
> > a 4/11 EMA cross on it, you will see the exact turning points
that
> I used.
> > Data for it is commercially available starting in January, 1985.
> I have
> > created my own values for it back to 1970.
> >
> > I think that I explained why the system did so well in January,
> 2001. I
> > believe that many stocks were oversold in December, 2000 and
this
> system
> > picked took advantage of that situation. Such spectacular
> (unbelievable?)
> > performance is only by circumstance. The system was not curve-
> fit to take
> > advantage of that situation. In fact, I wish that the huge
spike
> wasn't
> > there.
>
>
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