|Weekly Newsletter 11/19/10|
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The trend for all the major indexes remains upward as the markets climbed a 'wall of worry' beginning Wednesday in the face of considerable nervousness surrounding:
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If you are sceptical about Quantitative Easing, you will find this very, very funny: Quantitative Easing Explained
|New Features this Week||Additional Value that we added this week|
To make the Cup-with-Handle backtest tool even more realistic, I added a "transaction cost" option. If you set this to your brokerage fee and an estimated slippage amount then this will be applied to each buy and sell transaction in the simulation.
A change was also made to the implementation of the trailing stop. I found that it was being applied if the close was below the trailing stop rather than if the low was below the trailing stop.
|This Week's Top Tip||Tips for getting the most out of our site|
Following last weeks progress report on how MTC stocks have fared since the introduction of the MTC criteria, someone noticed that if the trailing stop is reduced to 1% then the gains improve considerably and they questioned the accuracy of the backtest.
I replied that this result was to be expected as the effect is to take small gains often which then accumulate through compounding to give a better return. I suspected that if a transaction cost was applied, then this "churning" would reduce the gains significantly. I was wrong. Although the transaction cost does reduce the gains, the benefits of taking small quick profits are still substantial.
If you run the backtest now with the corrected trailing stop and with a transaction applied ($7.50 is the default) you will see that taking smaller profits often has significant benefits.
For example, using the default settings (8% trailing stop) for the MTC strategy over 12 months gives a return of 76.6% with eleven transactions completed. If the trailing stop is reduced to 1%, the number of transactions goes up to 29 and the profit goes up to 241%!
|Market Summary||Overview of market direction and industry rotation|
|Weekly Breakout Report||How confirmed breakouts performed this week|
2This represents the return if each stock were bought at its breakout price and sold at its intraday high.
3This represents the return if each stock were bought at its breakout price and sold at the most recent close.
|Top Breakout Choices||Stocks on our Cup-and-Handle list with best expected gain if they breakout|
|Top Second Chances||Stocks that broke out this week and are still in buyable range|
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