EdgeWare FastBreak Pro Version 6.5 - Manual (Page 82)

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Q) I’m using NCalpha ranking, and the funds ranked highest have recently dropped more
in price than any other funds in my trading family. How can funds that have dropped so
much be ranked high?
A) Look at the formula for NCalpha in the Appendix. Funds that have dropped a lot
during a major market sell off can have a very high beta. The high beta combined with a
negative index gain over the ranking period can result in a positive alpha. For example,
a fund with a beta of 3, while the market index decreases by 15%, will have a positive
NCalpha if it looses less than 45%.
Q) Should I ever “over-ride” the trading system?
A) Usually the answer is no. One very good reason to stop trading a system is if the
system starts to experience an MDD that is greater than the historical maximum value.
This is an indication that the market conditions are not favorable with your system. It
may be time to either reoptimize the trading system or wait until market conditions
improve.
Q) When I use the Short/Long ranking method, the optimizer finds strategies where the
“short” parameter is longer than the “long” parameter. How can this happen?
A) The short and long parameters are exponential moving averages (EMA) periods.
When a fund is moving up strongly in the short term compared to the long term, this
usually indicates price strength, and the ratio of short EMA divided by long EMA will be
a large value. However, if a long EMA divided by a short EMA results in a large value,
this indicates short term weakness. So why would the optimizer pick this condition? It is
called “buying the dips.” In a very strong market as existed in the 1990’s, the buy the
dips was a very profitable strategy. Funds that sell off the strongest in a short term pull
back are often the funds that rebound the strongest.
Note: In response to users, in
version 5 we allow the user to force the Short EMA to be less than the Long EMA.
Common Issues and Problems
The family name can only contain 8 letters. If you optimized the family with FastBreak
Pro, give your DFT file a maximum of 7 letters because a 0 through 9 will be appended to
make 8 letters.
When entering IS and OS dates, use the format mm/dd/yyyy. This means including all
leading zeroes. Enter 03/07/2000 instead of 3/7/2000.
Special Note on Start Dates: One of the most common errors users get is caused by a
start date that is too early. This has become more common as users transition to ETFs.
Most ETFs have very short histories.
FastBreak assumes historical data starts on
9/1/1988 (earliest date in FastTrack database) to adjust the start date. If you use a trading
family of funds, stocks that generally don’t have a long history you will need to adjust the
IS Start Date to a much later date. This is easy to do by following these steps:
1. Enter all your parameters and let FastBreak adjust the IS Start Date