Risk/Reward & Percent Risk Position Sizing

Things are not always what they seem.

I am away this weekend and will not have time for a regular study but I wanted to cover something that will be an important concept moving forward. For those already familiar with these concepts, I apologize in advance for boring you but we will be adding a little twist at the end.

To-date on this blog, we have not really introduced money-management, position sizing, and compounding to any of our tests. The reason for this is to keep the raw test results as pure as possible without the introduction of additional variables and complexities. As we began to introduce these elements to our tests, I will primarily use percent risk position sizing on this blog and wanted to briefly describe how it works and point out a few key structural components with a very straight-forward example.

Let’s assume the following:

Trading Account: $100,000
Risk per trade: 1%
Protective Stop: 8%
Profit Target: 20%
Share Entry Price: $50

By choosing to put 1% of our equity at risk per trade, we are risking up to $1000 per trade: $100,000 * 1% = $1000.

Our system calls for an 8% protective stop and we know we have an entry price of $50 so that means we are risking $4 per share: $50 * 8% = $4.

This means our protective stop gets placed at $46: $50-$4=$46

Now to calculate how many shares to buy, we simply divide our risk amount per trade by our risk amount per share: $1000/$4 = 250 shares.

Easy enough. Stockbee has an easy-to-use calculator for this on the website.

Now here is where things get interesting. We know that if our protective stop gets hit, we lose $1000 but if we hit our profit target, our gain will be $2500: $50 * 20% * 250 shares = $2500. Obvious enough, but what happens if we use a 4% stop instead? Run the math. We now are buying 500 shares at the same risk level. This means if our protective stop gets hit, we still only lose $1000 but if our profit target hits, we now make $5000 instead of $2500. The risk/reward ratio is 2x as much.

But wait, there is always a catch. We also know that the tighter the stops, the lower our win rate. The question you must ask his how much lower is it? This is really what expectancy is all about. If we refer back to one of our earlier studies and look at the raw data here, we see that in this example, our 8%-20% stop combination had a win rate of 41.94% compared to only 26.04% for the 4%-20% combination.

If we calculate expectancy for these two scenario (Chris Perruna will show you how) using the same number we did at the beginning, we get an expectancy of $467.90 for the 8%/20% combo and an expectancy of $562.40 for the 4%/20% combination – 20% more! The reason for this is simply because the tighter stops allow us to put on larger positions at the same risk level and this only becomes evident after the implementation of percent risk position sizing.

If we take this one step further and make – say 200 trades with each pair of stops in a year, the 8%/20% combo would generate $93,580 in profit while the 4%/20% combo would make $112,480 in profit and still does not include compounding. Furthermore the tighter stop will loosen up dead capital much quicker and will allow us to make more frequent trades with less margin. The only thing standing in our way now is the psychology of a 26% win rate.

Additional info:
Trader Mike

05/30/08

Date: 05/30/08
Open: $54.30
High: $55.43
Low: $53.49
Close: $54.70
Volume: 2,738,820
Advances: 77
Advances >=4%: 10
Declines >=4%: 3
Daily Change: 1.531%
Dow: -0.06%
Nasdaq: +0.57%
S&P: +0.15%

05/29/08

Date: 05/29/08
Open: $54.51
High: $55.42
Low: $53.00
Close: $53.87
Volume: 2,972,119
Advances: 27
Advances >=4%: 6
Declines >=4%: 13
Daily Change: -1.479%
Dow: +0.41%
Nasdaq: +0.87%
S&P: +0.53%

05/28/08

Date: 05/28/08
Open: $53.53
High: $54.98
Low: $52.55
Close: $54.67
Volume: 2,781,925
Advances: 86
Advances >=4%: 23
Declines >=4%: 1
Daily Change: 1.723%
Dow: +0.36%
Nasdaq: +0.22%
S&P: +0.40%

05/27/08

Date: 05/27/08
Open: $53.51
High: $52.45
Low: $52.27
Close: $53.74
Volume: 2,542,711
Advances: 51
Advances >=4%: 9
Declines >=4%: 1
Daily Change: 0.372%
Dow: +0.55%
Nasdaq: +1.50%
S&P: +0.68%

Average True Range, Part2: Stops

This week we are going to be referring to two previous studies:
A Closer Look at Profit Targets
Average True Range, Part1

In the first Average True Range Study, we concluded that ATR multiple breakouts entries did provide an edge over percentage breakouts with regard to expectancy and efficiency. The logic behind that is based on the adaptive nature of ATR breakouts to conform to various markets, time periods, and conditions. This week, I set out to determine if that same logic would apply to stops, thus offering an advantage over the percentage stops tested last week. The entry criteria will be exactly the same as last week’s study and we will also be testing protective stops and profit targets using ATR multiples instead of percentages.

The logic for these stops are as follows:

Protective Stop
ATRStopPrice=EntryPrice-(Average(TrueRange,10,0)*ProtStopX)
ExitLong(ATRStopPrice,Stop,Day)

Pofit Target
ATRProfitTargetPrice=EntryPrice+(Average(TrueRange,10,0)*ProfTgtX)
ExitLong(ATRProfitTargetPrice,Limit,Day)

What is interesting about these is that the stop and target prices are calculated daily based on the previous 10-days ATR and therefore change from day-to-day to adapt themselves to the security’s recent volatility. They expand as volatility increases and contract as volatility dries up.
In order to make these results comparable to last week's, I began by determining what ATR multiples for stops and profit targets gave me similar average losses and average wins. What these preliminary test concluded was that an ATR multiple of 1.0 closely corresponded to 4% of price movement over many, many trades (with equities). Therefore we will step through ATR multiples of .5 (from .5-2.5) for protective stops and 1.0 (from 1-10) for profit targets to closely resemble last week’s study. You will note when making comparisons that the average wins and losses for these are similar. Comparison Study here

As usual, we will run the test on three separate portfolios to increase our confidence that the results are systemic and all tests will be run from 01/01/1998-12/31/2007.

Let’s being by looking at EDR=Expectancy per dollar risked. It is calculated by Average Trade/Average Loss. The results are in dollars with .28 representing 28 cents per dollar risk.





It is never as much fun to write about inconclusive tests but unfortunately that seems to be the case here. Of the three portfolios, ATR stops only outperformed on the Nasdaq portfolio with a maximum EDR of 1.34 vs 1.01 for the percentage based stops. The average EDR for the Nasdaq portfolio was .61 and and .5 respectively. That is a substantial improvement but this points out why multiple portfolios is critical if one is serious about finding robust methods. On the IBD portfolio, the ATR stops had a maximum EDR of .73 and an average of .36 while the percentage stops resulted in a maximum of .81 with an average of .4. Not as large a difference but clearly no edge for the ATR stops with our IBD portfolio. The S&P results were about equal.

Now lets look at a more conventional performance barometer, PF=Profit Factor. This ratio is derived simply by dividing gross profit by gross loss.





The results are very similar here as well with only the Nasdaq portfolio experiencing an advantage of the ATR stops over the percentage based ones.

Finally, for EER=Efficient Expectancy Ratio. This is our EDR/Avg. Days in Winning trades. This number is meant to reveal the most efficient use if capital as it calculates expectancy per dollar risk per day in trade. The results are in dollars with .01 representing 1 cent per dollar risk per day in trade.





Ah ha, our good old EER ratio again presents a unique picture. With regard to trade efficiency, the ATR stops do reveal an edge across all three portfolios with varying degrees of success.
IBD ATR - max:.030 avg:.012
IBD % - max:.024 avg:.010
NAS ATR – max:.043 avg:.021
NAS % - max:.029 avg:.013
S&P ATR - max:.020 avg:.011
S&P % - max:.012 avg:.005

Although we are dealing with small numbers here, the advantage in percentage terms is not inconsequential.

So how do we make sense of these mixed results? I want to make it clear where facts end and speculation begins … here.

It is my belief that ATR stops are effective when using extremely tight stops which is where we see the EER test really excel. The looser the stops, the less a role daily noise plays as more significance is offloaded to vehicle selection, overall trend, and structural relationships. The evidence does seem to suggest that ATR is effective at allowing stops to adapt to and remain clear of daily volatility when deployed properly under appropriate circumstances. Personally, I would strongly consider and test ATR stops further if my system objectives required tight stops or all of my orders were executed mechanically with my brokerage. The success with the Nasdaq portfolio was substantial enough to warrant further testing. Below, I will post the raw data for futher study. Hope everyone here in the U.S. enjoyed their Memorial Day weekend.

Turnover for week beginning 05/27/08

Only 7% turnover on the IBD100 this week.

More RSI(2)

Following is some extra-curricular research I have been working on regarding RSI(2) as a short-term mean recursion system in conjunction with several other bloggers.

Woodshedder
Dogwood
Skill Analytics

The following looks at two conditions on my 3 standard test portfolios + a leveraged long and short portfolio of ETFs. The ETFs test back as far as there is data for them and the stock portfolios test back 20-years to 01/01/1988. Each trade is $10,000. No money management, slippage, commissions, etc. have been used.

The left most column is RSI(2) value used in a <= condition.
PF=Profit Factor
EDR=AverageTrade/AverageLoss
EER=EDR/Avg. Days in Winning Trades.

I will continue to append this post as more research is done. As this system is basically looking to catch short term corrections and stay out of breakdowns. As such, there are a few other conditions I will testing including: A) Testing for diminishing volume on the pullback that sets up the RSI<=X condition. B) Testing to make sure the longer-term trend is still intact with Bollinger bands, n-day lows and additional longer-term moving averages.


Condition 1:
Entry: 50-day Avg Vol >= 100,000 shares
RSI <= X
Exit:
RSI >= 80


Condition 2:
Entry:
50-day Avg Vol >= 100,000 shares
RSI <= X
Close >= 50-day sma
Exit:
RSI >= 80


Chart of results:

Notes: I believe the catawampus curve on the ETFs is due to the relatively few samples. I also tried requiring the RSI(2) to be below the threshold for two consectuve days but that didn't really help things, which suggest if you do not get an immediate bounce, you could be looking at a breakdown. This sets up the possibility that the addition of a 1-day timed stop if RSI(2) stays below your threshold could help keep you out of trouble.

---

Money Management Tests
For these, I added a 12% protective stop that was used for percent risk money management in addition to Condition 2 entry and exits using RSI<=10. Tests were run on leveraged ETF portfolio. Risking 5% of equity per trade:
Start Size $10,000.00
First Equity Date 09/01/06
Last Equity Date 05/19/08
Number of years 1.7139

Return Over Period 111.83%
AnnualReturn 65.25%
Compound Annual Growth Rate 54.96%

Percent Maximum Drawdown 15.53%
Date of Maximum Drawdown 12/10/07

Date of the Longest Time Between Peaks 06/11/07
Longest time between peaks 117 days
Average time between peaks 43 days 10:17

Sharpe Ratio 1.8545
MAR 3.5386

Risking 10% of Equity Per Trade

Start Size $10,000.00
First Equity Date 09/01/06
Last Equity Date 05/19/08
Number of years 1.7139

Return Over Period 321.45%
AnnualReturn 187.56%
Compound Annual Growth Rate 131.48%

Percent Maximum Drawdown 29.15%
Date of Maximum Drawdown 12/10/07

Date of the Longest Time Between Peaks 06/11/07
Longest time between peaks 117 days
Average time between peaks 43 days 10:17

Sharpe Ratio 1.9035
MAR 4.5099

I have posted a Trade by Trade report HERE for the 10% risked per trade model

NOTE: Damian pointed out that the percent risk model is becoming over-leveraged on 8/27 when multiple signals are triggered. I hadn't caught it yet - thanks. Need to look into some methods of trade selection/rejection when multiple signals received. This is a problem with percent risk position sizing as situations can occur when a risk allocation can actually have you purchase more positions that available equity will allow. Rather than pull it down, I will leave this up as an example of good collaboration at work. In real-time, I would probably backtest signals and take the best-performing one. There is a way to do this with "virtual trades" in Trader's Studio but I don't know how to code it - yet.

05/23/08

Date: 05/23/08
Open: $54.08
High: $54.74
Low: $52.27
Close: $53.54
Volume: 2,502,538
Advances: 22
Advances >=4%: 3
Declines >=4%: 5
Daily Change: -1.028%
Dow: -1.16%
Nasdaq: -0.81%
S&P: -1.32%

05/22/08

Date: 05/22/08
Open: $54.77
High: $55.64
Low: $53.07
Close: $54.10
Volume: 3,189,596
Advances: 29
Advances >=4%: 2
Declines >=4%: 13
Daily Change: -1.213%
Dow: +0.19%
Nasdaq: +0.67%
S&P: +0.26%

05/21/08

Date: 05/21/08
Open: $55.99
High: $57.18
Low: $54.28
Close: $54.82
Volume: 3,545,450
Advances: 21
Advances >=4%: 1
Declines >=4%: 19
Daily Change: -1.926%
Dow: -1.77%
Nasdaq: -1.77%
S&P: -1.61%

High volume distribution day across the board. The IBD100 did manage to stay above its 10-day moving average for its 13th consecutive day. Superstitious?

05/20/08

Date: 05/20/08
Open: $55.24
High: $56.54
Low: $54.20
Close: $55.90
Volume: 2,842,386
Advances: 64
Advances >=4%: 10
Declines >=4%: 4
Daily Change: 1.232%
Dow: -1.53%
Nasdaq: -0.80%
S&P: -0.87%

05/19/08

Date: 05/19/08
Open: $55.37
High: $56.78
Low: $54.13
Close: $55.22
Volume: 3,129,566
Advances: 53
Advances >=4%: 9
Declines >=4%: 9
Daily Change: 0.401%
Dow: +0.32%
Nasdaq: -0.50%
S&P: -0.50%

A Closer Look at Profit Targets

I’ve decided to postpone the ATR stop studies one more week and first take a closer look at percentage based profit targets in more detail. Percentage based stops are a more intuitively familiar and thus a better way to lay out some fundamental concepts we will also be addressing when we look at ATR stops. It will also provide us with data that we can compare and benchmark the ATR stops against. Many of the concepts are probably familiar to most but looking at the data in this way will make it possible to arrive at some basic mathematical “truths” when it comes to stop combinations. Fortunately, these “truths” are universal and applicable on any time-frame, from short-term day-trades to long-term buy-and-hold investing. It is imperative that a trader understand how the manipulation of these criteria affect the way your system will behave and what to expect out of it.

This week also makes it abundantly clear why it is absolutely critical that a trader or investor has a specific agenda when it comes to putting together one’s rule set. There is no magical combination of numbers, no “Holy Grail”. With certain benefits come certain drawbacks and understanding these concepts is crucial for putting together a system or set of rules that work specifically for what one is attempting to achieve. Perhaps the most important questions one must ask are: What time-frame am I most comfortable trading in? How often do I want to trade? How often do I need to be “right”?

As we will see, a protective/profit stop pair provides an enormously flexible technique for adapting a system fit the answers to these questions.

This week we will use some of the entry criteria collected in last weeks tests. I have chosen numbers that are balanced between providing us enough trades for statistical relevancy while still offering us enhanced performance over some of our earliest tests.

As usual, we will run the test on three separate portfolios to increase our confidence that the results are systemic and all tests will be run from 01/01/1998-12/31/2007.

Our entry criteria will a liquidity condition requiring 10-day average daily volume to be greater than 100,000 shares. In addition, we will require a volume surge over 10-day average daily volume to be >= 200% and a price breakout to be >= 2x the 10-day ATR. Trades will be entered at open with a market order the day following the entry signal and $1000 worth of shares are purchased for each trade..

Let’s being by looking at EDR=Expectancy per dollar risked. It is calculated by Average Trade/Average Loss. The results are in dollars with .28 representing 28 cents per dollar risk.







These tests are remarkably similar and allow us to begin to make some basic assumptions as they relate to the implementation and selection of stops. In addition to these charts, I will also post the raw results at the end of this blog entry that should be used to supplement the graphics.

From these results, we can state the following with reasonable certainty:

The higher our profit target, the higher our expectancy per dollar risk, irregardless of what protective stops we use. This can be clearly associated with upward price drift. The higher our price target, the longer our average winning trade and thus the increased benefit from this upward price drift. We also know however that with increased trade duration comes increased risk.

Referring to the raw data, we see that the greater the spread between the protective stop and the profit target, the lower our win rate. For our Nasdaq portfolio, we see that a 2% protective stop, coupled with a 40% profit target had the highest expectancy but only produced winning trades 13.79% of the time. Could anyone actually tolerate trading a system with that win rate? Probably not but the numbers do make sense, our winning trade will be 20 times our average loss and since we are correct 13.79% of the time, a sizable profit is derived from that difference.

The inverse is obviously true as well. In our Nasdaq portfolio, a 10% protective stop (our largest), coupled with a 4% profit target (our smallest) produces winners 75% of the time but our average trade is only $9.06, compared to $80.89 for the 10%-40% combination, with an EDR of only .09 cents per dollar risk.

Ironically, with any fixed pair of stops, an increase in win% is the only way to increase net profit for a given set of stops. Your average loss is fixed, your average win is fixed, and therefore winning more often is the mechanism by which more profit is generated. In the previous two entry studies here and here, an 8% protective stop with a 20% profit target was held consistent. The increase in performance with the ATR entries can be associated with an increased win% at these stops.

Now lets look at a more conventional performance barometer, PF=Profit Factor. This ratio is derived simply by dividing gross profit by gross loss.







In these test, we benefit from upward price drift with both our protective and profit stops but unfortunately, as with EDR, a higher PF comes with a lower win rate. This paradox is perhaps what has allowed trend following to continue working for so long. There is a psychological barrier that exploits a fundamental characteristic among most of us, the need to be “right”.

The last set of tests does however offer a different perspective.
EER=Efficient Expectancy Ratio. This is our EDR/Avg. Days in Winning trades. This number is meant to reveal the most efficient use if capital as it calculates expectancy per dollar risk per day in trade. The results are in dollars with .01 representing 1 cent per dollar risk per day in trade.







Here we begin to see a different picture emerge. One of the most critical considerations for an active trader is the efficient use of capital. These tests begin to prove a less conventional, but more useful barometer for deploying this capital to quickly roll into and out-of trades, maximizing profit and minimizing dead-money in go-nowhere trades. Using this ratio as a gage, we see that a very tight protective stop, coupled with a modest price target is the most efficient in this regard. Again referring to our Nasdaq portfolio, a 2%-12% combo is the retrospective “ideal”. In this scenario, our win rate is only 25% but our average win is 6x our average loss. Our average trade duration for winners is also only 13-days which means with a 12% profit target, our winners are running at an average rate of nearly 1% per day. Trades that don’t immediately move in our favor get cut quickly and we are taking profits before trades start to linger.

RAW DATA







Everything we looked at today certainly provides credibility to the popular adage that stops have a larger impact on a system than do entries and the manipulation of stop combinations is one of the most effective methods of tailoring a system to one’s needs. So which if these techniques are “best”? I do not believe there is a single answer to this question and a position sizing strategy designed to take advantage of whatever stop combination one is comfortable with will have a tremendous impact on the bottom line, which is really what we are all concerned with. In a few weeks, after further building up our trading “kit-of-parts”, we will look at a few money-management/position sizing combinations to really see what these stop combinations could really make with trading cost, slippage, and compounding added to the equation.

Turnover for week beginning 05/19/08

13% Turnover on the IBD100 this week.

05/16/08

Date: 05/16/08
Open: $54.67
High: $55.68
Low: $53.75
Close: $55.00
Volume: 2,781,542
Advances: 75
Advances >=4%: 12
Declines >=4%: 2
Daily Change: 1.474%
Dow: -0.05%
Nasdaq: -0.19%
S&P: +0.13%

The IBD 100 continued to climb higher friday despite the flat performance of the broader indexes. The Index finished up 4.01% this week, its bets showing since the 6.35% gain for the week ending 04/18/08.

05/15/08

Date: 05/15/08
Open: $53.66
High: $54.73
Low: $52.81
Close: $54.20
Volume: 2,811,273
Advances: 80
Advances >=4%: 9
Declines >=4%: 1
Daily Change: +1.617%
Dow: +0.73%
Nasdaq: +1.48%
S&P: +1.06%

05/14/08

Date: 05/14/08
Open: $54.12
High: $54.95
Low: $52.88
Close: $53.34
Volume: 2,730,846
Advances: 27
Advances >=4%: 1
Declines >=4%: 4
Daily Change: -1.060%
Dow: +0.52%
Nasdaq: +0.06%
S&P: +0.40%

05/13/08

Date: 05/13/08
Open: $53.30
High: $54.39
Low: $52.32
Close: $53.91
Volume: 2,591,497
Advances: 73
Advances >=4%: 10
Declines >=4%: 1
Daily Change: 1.383%
Dow: -0.34%
Nasdaq: +0.27%
S&P: -0.04%

Today is IBDIndex's 50-day birthday. As a gift, you all get a 50-day moving average in the stats section. It will be added to the chart when there are enough data points for it to me more than a dot.

5/12/08

Date: 5/12/08
Open: $52.89
High: $53.92
Low: $51.68
Close: $53.18
Volume: 2,619,569
Advances: 66
Advances >=4%: 14
Declines >=4%: 3
Daily Change: 0.563%
Dow: +1.02%
Nasdaq: +1.76%
S&P: +1.10%

Average True Range, Part1

This week will be the first in a series that explores various implementations of Average True Range (ATR) for both entry and exit techniques. For those not familiar with ATR, I suggest reading THIS. I personally find ATR to be one of the most robust and elegant ways of measuring price movement primarily because it is incredibly adaptive across multiple time scales, markets and market conditions. The way we will utilize ATR in these studies is by measuring price movement as a multiple of its average ATR for both breakout entry criteria and next week, for protective and profit exit criteria. Unlike percentage changes, a system built around ATR multiples can be used quite effectively not only for stocks, but also for currencies, ETFs, commodities, etc. Let’s use the following example.

If the daily volatility of any underlying issue is ½%, then a 5% move is obviously much more substantial than a 5% move on an underlying that has an average volatility of 3%. A 5% daily move is a very rare occurrence for most indexes or forex markets while not unusual at all for many stocks. However, if we use a multiple applied to average volatility, we get a technique that is very effective at capturing moves of equal significance across any market or time frame. It just makes a lot of intuitive sense. Would you place equal significance on a certain percentage move if trading QQQQ and QLD? I want to be clear, I am not dismissing percentage moves as invalid and they are certainly much easier to implement. My argument is that ATR offers a more complete picture of the significance of a percentage move.

One more example, ATVI had a 5.49% gap up on Friday, unusual but certainly not an incredibly rare event. However, the ATR(10) multiple of that gap was 4.9x due to the extremely tight range that stock had been trading in. That is nearly 3 times as rare and far more significant.

As usual, we will run the test on three separate portfolios to increase our confidence that the results are systemic and all tests will be run from 01/01/1998-12/31/2007.

Our entry criteria will a liquidity condition requiring 10-day average daily volume to be greater than 100,000 shares. In addition, we will look at both volume as a percentage surge over 10-day average daily volume using a >= condition, and an ATR multiple price breakout over the 10-day average ATR in a >= condition. Trades will be entered at open with a market order the day following the entry signal.

Like last week, we will use 3D surface graphs to visualize both volume and ATR multiples simultaneously. We will begin by looking at the EDR results for the three portfolios.

EDR=Expectancy per dollar risked. This is my primary evaluation ratio and has been covered extensively in previous posts. It is calculated by Average Trade/Average Loss. The results are in dollars with .28 representing 28 cents per dollar risk.The “ATR multiple” axis of the graphs represent the ATR multiple change in price, while the “Volume%” axis of the chart represents the volume surge. This is consistent in all tests. The z-axis represents our various evaluation ratios. For clarity, some of the graphs have been rotated so please pay attention to the axis when comparing results across multiple tests, particularity when compared to the previous study.

Let’s begin by focusing on the EDR ratio. First, compared to the percentage price action studies from a few weeks ago, ATR breakouts provide us with peak expectancy figures that are 84% higher for our IBD portfolio, 28% higher for our Nasdaq100 portfolio, and 24% higher for our S&P500 portfolio. Furthermore, when compared to the percentage study, the average expectancy across all ATR tests was 43% higher for the IBD portfolio, 21% higher for the Nasdaq100 portfolio and 16% higher for the S&P500 portfolio. From this, we can begin to conclude that ATR does provide us with an effective way of evaluating price movement, perhaps more so than single daily percentage changes in the creation of a breakout trading strategy.

Also, when compared to the previous study, we see a much more implicit increase in expectancy as we move along the ATR-axis of the graphs. While the price action axis of the percentage breakout tests offered little to no expectancy edge on any of the 3 portfolios and a clear disadvantage on the IBD portfolio, leaving most of the work to volume, here we see a clear advantage in 2 of the 3 portfolios and no negative impact on any of them. Very encouraging results.

A word of caution. While I go to great pains to avoid presenting overly curve-fit results, the spike you see along the 4.0 ATR multiple of the IBD portfolio is a clear warning sign. What we look for in these tests are smooth trends as we modify variables and a sudden spike in the results is always a concern. What it means is that particular number on these particular stocks happen to jive well together and while that does not invalidate the results, it means that future test will probably not perform anywhere near those levels. What I would do in a situation like this is use an average of the 3.5x & 4.5x results along that axis as a better indication of what we would more likely experience in real-time. That is exactly what we will do next week when evaluating our entry criteria to use with ATR multiple exits next week.

Below, I will post the EER and DDR results for these tests. I will not comment on them but am making them available for those motivated to dig a little deeper. If anyone has any questions, feel free to ask.

EER=Efficient Expectancy Ratio. This is our EDR/Avg. Days in Winning trades. This number is meant to reveal the most efficient use if capital as it calculates expectancy per dollar risk per day in trade. The results are in dollars with .01 representing 1 cent per dollar risk per day in trade







DDR= Drawdown ratio. This number is calculated by Net Profit/Maximum Drawdown. A higher number is better.

Turnover for week beginning 05/12/08

17% Turnover on the IBD100 this week.

05/09/08

Date: 05/09/08
Open: $52.71
High: $53.54
Low: $51.64
Close: $52.88
Volume: 2,292,730
Advances: 43
Advances >=4%: 3
Declines >=4%: 1
Daily Change: 0.165%
Dow: -0.94%
Nasdaq: -0.23%
S&P: -0.67%

05/08/08

Date: 05/08/08
Open: $52.24
High: $53.32
Low: $51.26
Close: $52.78
Volume: 2,554,338
Advances: 76
Advances >=4%: 9
Declines >=4%: 0
Daily Change: 1.415%
Dow: +0.41%
Nasdaq: +0.52%
S&P: +0.37%

05/07/08

Date: 05/07/08
Open: $53.21
High: $54.00
Low: $51.50
Close: $52.04
Volume: 2,851,061
Advances: 13
Advances >=4%: 1
Declines >=4%: 13
Daily Change: -2.020%
Dow: -1.59%
Nasdaq: -1.80%
S&P: -1.81%

05/06/08

Date: 05/06/08
Open: $52.25
High: $53.72
Low: $51.48
Close: $53.11
Volume: 2,683,323
Advances: 70
Advances >=4%: 17
Declines >=4%: 3
Daily Change: 1.711%
Dow: +0.40%
Nasdaq: +0.78%
S&P: +0.77%

05/05/08

Date: 05/05/08
Open: $51.86
High: $53.03
Low: $51.06
Close: $52.24
Volume: 2,347,357
Advances: 71
Advances >=4%: 11
Declines >=4%: 1
Daily Change: 1.432%
Dow: -0.68%
Nasdaq: -0.52%
S&P: -0.45%

Back above the 10-day sma on lower volume. A very solid performance given the slip in the broader indexes which all closed down today. The interesting question currently... is the IBD100 leading or lagging? It is certainly out-of-step with the big boys as of late.

Turnover for week beginning 05/05/08

18% Turnover on the IBD100 this week. I was away this past week and was unable to complete a backtesting study. Those will resume next weekend.

05/02/08

Date: 05/02/08
Open: $51.36
High: $52.44
Low: $50.28
Close: $51.50
Volume: 2,843,931
Advances: 61
Advances >=4%: 17
Declines >=4%: 2
Daily Change: 1.337%
Dow: +0.37%
Nasdaq: -0.15%
S&P: +0.32%

This was the second week in a row the IBD100 the closed lower for the week, down -1.09% while the Nasdaq climbed 2.2%, the Dow 1.3% & the S&P 500 1.2%.

05/01/08

Date: 05/01/08
Open: $50.93
High: $52.00
Low: $49.07
Close: $50.82
Volume: 3,445,508
Advances: 53
Advances >=4%: 13
Declines >=4%: 11
Daily Change: 0.104%
Dow: +1.48%
Nasdaq: +2.81%
S&P: +1.71%

The IBD100 again lagged the broader indexes today. We have seen some signs of this recently so today's action is not without recent precedent. Last week, the IBD100 played catch up the day following a broader market rally and that may be the case tomorrow. The signs are becoming increasingly clear however that this rally is being driven by new leadership outside the current IBD100.