EdgeWare FastBreak Standard Version 6.5 - Manual (Page 102)

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In this case the temporary move is a positive because if the price returns to the previous
trend there is addition profit to be made. The RAT algorithm will enhance this stock’s
ranking by the degree the price is below the trend.
You may notice a significant increase in trades when using RAT. One explanation is that
the moves away from the trend are short term in nature and a system that trades more fre-
quently can take better advantage of the return to the trend.
Here are a few additional comments about using the RAT option. First, RAT only works
with Linear Slope. It will not work with any of the other ranking techniques. Second,
how can we be sure that the temporary price moves, especially to the downside, are in
fact temporary? You can never certain on price moves, but some of the Stop options may
come into play. For example, perhaps the strategy uses a 50 day EMA Stop. As long as
the stock remains above the Stop the price move is somewhat confirmed as a temporary
move. On the other hand, perhaps the upward price move above the trend is permanent
and rather than penalizing the stock, it should in fact have an improved ranking. This
second case can be handled by the BAT option which will be discussed next. Sometimes
RAT will get the price move wrong. RAT allows the user to test strategies and determine
if it is more often a benefit or not.
BAT (Breakout Above Trend)
Sometimes a stock will have a good positive long term price trend, but for various rea-
sons new buying will come into the stock and an even better trend will be established.
This is different from the BOOM option which tries to determine when a stock that has
been falling breaks out to the upside. See the following chart:
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12/23/2009 1/2/2010 1/12/2010 1/22/2010 2/1/2010 2/11/2010
Date
P
ri
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e
New Trend
Long term trend
Buy as long as price
above LT trend
What you hope happens
There is a lot happening in this chart so let’s step through it. First, we see that our stock
was on a long term price trend. At some point the price breaks upward and forms a pos-
sible new trend. It wouldn’t be appropriate to use the old trend data to determine the
ranking so in this case only the new trend data points should be used to calculate the rank-