EdgeWare FastBreak Standard Version 6.5 - Manual (Page 93)

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becomes very deep. It was felt that this steady buying may also apply to mutual funds
that are invested in a “high demand” group of stocks.
A methodology was developed that would apply a penalty to funds based on the number
and depth of their drawdowns from their recent highs. Another way of looking at the
methodology is to favor upside volatility, but penalize downside volatility. Here is how
POP works:
Each time a fund is ranked over a ranking period, a summation is made of the square of
the percentage the fund NAV is below the previous high. This summation is made each
day over the ranking period and is very similar to the calculation made in the Ulcer Index:
Sum DD = Sum of R
2
Where:
Sum DD = Sum of the percentage draw down.
R = The percent amount that a fund is below its highest previous value
Next, Sum DD for all the funds in the trading family needs to be scaled. The mean and
standard deviation is calculated for the Sum DD of the entire family. The number of stan-
dard deviations from the mean is calculated for each fund, i.e., if a fund has a low Sum
DD it will have a negative value for the number of standard deviations from the mean. A
positive number of standard deviations will result from funds with a Sum DD greater than
the mean. The algorithm truncates the number of standard deviations between +/- 3 stan-
dard deviations which should incorporate 99% of the expected range for a normal distri-
bution. This methodology will “clump” most of the funds around the mean, i.e., zero
standard deviations.
The final step is to scale the range between a value of 1 to a maximum value supplied by
the user. If the user has a value of 4 for the POP input then the scaling range will be 1 (-
3 standard deviations from the mean) to 4 (+ 3 standard deviations from the mean). Most
of the funds will have a value near a scaled value of 2.5. This scaled range is used to ad-
just the percentage gain over the ranking period for each fund. If a fund has a very low
scaling factor, the gain will be divided with a value near 1. A fund that has a high Sum
DD will have its gain scaled by a large number.
Note: POP will not work with all ranking methods. See the summary of options matrix
in the FastBreak Options and Functions chapter. Money Market should be excluded
from ranking when using this option because the option will have a tendency to pur-
chase the money market often (money market funds never have drawdowns).
Anchored Momentum
Anchored Momentum (AM) is a technique developed by Rudy Stefenel. Mr. Stefenel
describes the technique in the February 1998 issue of Technical Analysis of Stocks &