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<FONT face=Arial color=#0000ff
size=2>Mark,
<FONT face=Arial color=#0000ff
size=2>
That's
actually the problem. You'll "never" get stopped out in live
trading, but your system doesn't know about dividends when it is
backtesting. It only knows about a fall in price. It can
distort indicators, trigger stops or just about any other possibility over a
backtest window.
<FONT face=Arial color=#0000ff
size=2>
I
agree that we are talking small problems. But, when backtesting a
small number of trades, even one can distort the results.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: quanttrader714
[mailto:quanttrader714@xxxxxxxxx]Sent: Thursday, January 08, 2004
6:15 PMTo: amibroker@xxxxxxxxxxxxxxxSubject: [amibroker]
Re: dividend (more on the subject)b,Did you
see my post to Chuck? The dividend yield numbers that I citedwere
*per annum*. Not to mention that if you have an actual trade
on,you'll *never* be stopped out due to a dividend adjustment because
(inthe U.S. at least) your stops will be *automatically* adjusted.
In mytrading, this "issue" has been a non-issue.--- In
amibroker@xxxxxxxxxxxxxxx, b <b519b@xxxx> wrote:> --- Chuck
Rademacher <chuck_rademacher@xxxx> wrote:> > As I mentioned in
one of my earlier posts, there aren't enough ABusers who> >
appreciate the problem and are prepared to do the work toeliminate
it.> > Conclusion:> > Perhaps it is based on my
own limited experience, but I am moreconcerned about> removing bias
caused by survivorship (ignoring inactives) and bysplits (using>
adjusted prices in filters and ranking formulas). > > My
(untested) hypothesis is that, in most cases, including/excludingdividends
may> make a difference, but not enough of one to make a good system
lookbad (or a bad> system look good). It might, however, affect
results enough to leadone to pick a> good system over a better
system. > > Thus, ideally, one would like to use data that
includes dividends. Iwill explore> what form that data might take
in another post.> > Detailed Reasoning:> > What
follows is a bit of thinking out loud to clarify my ownunderstanding. It
might> also help others get a handle on the issue. Here is my expanded
listof possible> problems that might arise for long (and short)
systems using datathat ignores> dividends:> > 1.
Entry problems for long systems: if the system buys beaten downstocks, a
large> 30% to 50% dividend could drop the price enough to get a false
buysignal. Probable> result: likely only a loss of opprotunity
(could have had money inanother stock)> since the stock is no more
likely to drop further than it is to rise. > > 2. Exit problems
for long systems: a large dividend and theresulting price drop>
would likely trigger an early exit. Probable result: an early exitwith a
profit,> and perhaps an opportunity cost if the stock goes up after
thedividend payout.> > 3. Exit problems for long systems: a
medium dividend (%2-4%) mightalso trigger stop> loss exits but only
if the stock had been doing poorly to begin with(or if the> system
uses very tight stops). Probable result: loss or opportunityand
the> slippage/commission cost to enter a new trade to replace the
stoppedout one.> > 4. Profit calculations for long systems:
Ignoring dividends wouldeither not affect> profit calculations (if
there were no dividends during the holdingperiod) or would>
underestimate profits (because adding the dividends in wouldincrease the
gain).> > 5. Profit calculations for long systems with
multi-year holdingperiods (not likely> many such investors are
reading this board) which happen to mainlypick dividend> stocks
might so underestimate returns that the system would bediscarded when
it> might have been kept if the data had included dividends. >
> 6. Short systems might have bigger problems with dividends:
Ignoringdividends in> testing could underestimate profits since any
price drops related todividend> payments would be illusionary. Also
a short system that enters ondownside breakouts> could get, form
time to time, a false entry signal. > > b> >
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