EdgeWare FastBreak Pro Version 6.2 - Manual (Page 57)

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Example 3 – Trading Stocks
One of the most exciting and aggressive uses of FastBreak Pro is developing stock
trading systems. Note: Trading individual stocks is by its very nature not diversified
when compared to trading mutual funds. Stock trading systems are subject to very
substantial draw downs. We have found that, in strong markets, stock trading systems
can, in general, significantly outperform mutual funds trading systems on a return
basis. However, in weak markets, stock trading systems are subject to whipsaw trades
and significant drawdowns.
As with mutual funds, it is important to choose the trading family wisely. Stocks that
have very violent up and down movements are subject to whipsaws.
Stocks that have
smooth price movements are preferred. Also, with the thousands of stocks available, why
choose those that have had historically poor price performance? In our example, we will
use a selection of stocks from the S&P 500 Index as the trading family. We took the
stocks from the S&P 500 and applied two filters using the FastTrack spreadsheet. If you
don’t know how to use the FastTrack spreadsheet, use the FastTrack Help files for
instruction.
We loaded the S&P stocks into the spreadsheet and deleted the approximately 100 stocks
that did not have a full history between 9/1/1988 and 12/31/1999. Next, we looked at the
Ulcer Performance Index (UPI) for the remaining stocks. We sorted the stocks by UPI
and deleted those with the lowest UPI until we had a list of 200 stocks. Note: We ended
the UPI sort with 12/31/1999 because we wanted to do a stressful test of the trading
strategy.
Our OS period is 1/3/2000 through 1/2/2001, which was a very difficult
investment climate. We wanted to see how well the OS results would be without benefit
of filtering the stocks in the OS time period. An investor trading a system sorted in this
manner would want to include the UPI sort over the entire IS and OS time period to
have as much recent data as possible. We saved the filtered family with the name
UPI.fam. The UPI.fam family can be found on your final installation disk, and you
should transfer it to your FastTrack Userdef folder prior to launching FastBreak Pro since
FastBreak Pro only has access to trading families available the time the application is
launched.
After launching FastBreak Pro, load Example3.GPF, located on your installation CD,
into FastBreak Pro. If you have copied the GPF file from your installation disk to your
hard drive, load it from the hard drive. Remember to change the path to the family file if
required and save the GPF file with the new path.
Examine the parameter setting ranges. For stocks, we use somewhat different ranges for
many of the parameters.
For example, this strategy is expected to be very volatile
because, in part, we are trading individual stocks, and we have set the MDD goal to 30%.
The upper ranges used on the stop and ranking parameters are also increased. Note:
There is an important issue to be aware of when trading individual stocks. It is very
possible that one, or a very few, trades will have enormous gains. These gains can give