FastBreak Version 5.x Edge Ware, Inc. www.edge-ware.
Disclaimer and License Agreement The information that FastBreak and FastBreak Pro provide is only part of the information needed for a good investment program. Consult your investment representative before buying or selling any fund or stock. Read the prospectus to determine whether an investment meets your objectives. EDGE WARE, INC. DOES NOT RECOMMEND SPECIFIC INVESTMENTS SUITABLE FOR YOUR PERSONAL OBJECTIVES BUT IS LIMITED TO PROVIDING INFORMATION FROM THE BEST AVAILABLE SOURCES.
Table of Contents 1.0 Preface........................................................................... 4 2.0 Introduction................................................................... 5 3.0 Upgrade Notes .............................................................. 6 4.0 FastBreak Trading System.......................................... 10 5.0 Technical Support and Upgrades ................................ 13 6.0 Installing FastBreak .................................................... 15 7.
1.0 Preface This manual supports both Standard FastBreak and FastBreak Pro. FastBreak Pro users will see additional icons on the icon tool bar and two extra pull down menus. The additional FastBreak Pro screens, and optimizer functionality activated by these icons, are covered in the second manual that comes with the FastBreak Pro software. When we refer to FastBreak in this manual it will always apply to both Standard FastBreak and FastBreak Pro unless otherwise noted.
2.0 Introduction FastBreak was reviewed in the July 1999 issue of Technical Analysis of STOCKS & COMMODITIES, the premier technical analysis investment magazine. Their review, in part, said, “This is easily the most elaborate fund switching software we’ve run across, and it’d be worth the time to check it out.” The latest version of FastBreak you have in your hands is far more advanced than the version reviewed. FastBreak is an investment tool that relies on the Investors FastTrack database.
3.0 Upgrade Notes Maintaining Existing FastBreak Trading Strategies If you have existing FastBreak strategies that you like we recommend that you keep the old version of FastBreak on your computer until you have verified that the strategies produce the same results with the new version. Prior to installing the new version of FastBreak go to the folder where the existing version is located, typically ftbreak (ftbreakp for Pro users), and find the file ftbreak.exe (ftbreakp.exe for Pro).
velop our own signals that met our needs, e.g., switches per year, drawdown, markets traded etc. o One disadvantage of the many market signals available is that they are developed for a specific index, e.g., S&P 500 Index. Often, there is a divergence in different stock indexes, i.e., small cap stocks performing well while large cap stocks are not. FastBreak allows the use to combine multiple indexes (or any stock, fund, FNU file) into a family.
Stop loss using a short/long Exponential Moving Average (EMA) crossover. This is similar to the current EMA stop except that the fund NAV is smoothed with a short term EMA. Buy filter using a short/long Exponential Moving Average (EMA) crossover. This is similar to the current EMA Buy filter except that the fund NAV is smoothed with a short term EMA.
Ability to search the Buy and Sell ranking list by fund symbol. Some users have very large trading families and it is difficult to locate a particular issue in the ranking list. This option allows the user to do an efficient search for the fund symbol.
4.0 FastBreak Trading System FastBreak uses a trading system method that buys mutual funds showing strong relative trends in price and sells funds that are showing poor relative trends in price. You may hear traders refer to this type of trading system using many names: market sector upgrading, momentum investing, trend following, fund ranking, and relative strength trading. We will take a quick look at each of these concepts, because there are small differences, and explain how FastBreak works.
to the index. Ranking strategies compare the price action of a fund to a group or “family” of other funds. The fund showing the greatest percentage change in price is purchased. There are obvious similarities in all these systems. FastBreak uses the Ranking method to select the funds to buy and sell.
8 FSCPX Fidelity Sel Consumer Prod/517 9 FSCSX Fidelity Sel Software-Comp/028 10 FSVLX Fidelity Sel Home Finance/098 11 FSHCX Fidelity Sel Medical/505 12 FSCGX Fidelity Sel Indus Equip/510 13 FDFAX Fidelity Sel Food & Agric/009 14 FSPHX Fidelity Sel Health Care/063 15 FSPCX Fidelity Sel Insurance/045 16 FSDCX Fidelity Sel Develop Comm/518 17 FSPFX Fidelity Sel Paper & Forest/50 18 FSDAX Fidelity Sel Defens & Aero/067 19 FSCHX Fidelity Sel Chemicals/069 20 FSDPX Fidelity Sel Indus Material/50 8.4 8.2 7.3 7.
5.0 Technical Support and Upgrades Note: Do not call Investors FastTrack for technical support. Do not use the 800 order line number for technical support. This is a commercial order line that only takes orders and they are not equipped to answer any questions. Any messages left with the order line will not be returned. Please read this entire manual and check the FAQ chapter before calling for support. We have tried to make this software and documentation as user-friendly as possible.
Go to our web site and download the latest upgrade, if one exists Upgrades We provide minor upgrades to FastBreak on our web site, and if you encounter an error, we suggest you download the latest version of the software because this will often solve the problem. The Edge Ware Internet Web site (www.edge-ware.com) always has the latest version for download. FastBreak is constantly improving, and we try very hard to get those improvements in the hands of our users as fast as possible.
6.0 Installing FastBreak To install FastBreak: Minimum of 5 MB free on your hard drive Minimum of 64 MB RAM (128MB XP) Minimum 200 MHz processor (300 MHz XP) Note - If running a very large trading family we recommend the following minimums: Trading family greater than 100 members – 500 MHz with 128 M RAM Trading family greater than 500 members – 1 GHz with 256M RAM 1) Start Windows 2) Stop any application that may be running.
The setup program is asking the name of the drive and directory where FastBreak is to be installed. The default is C:\FTBREAK (FTBREAKP for Pro), and we suggest that you use the default directory name. If the default is acceptable click on the button that resembles a computer. 6) If you need to change the drive letter or directory path click the Change Directory button and the following screen will appear: This screen allows you to change the drive and/or the path and directory.
Reinstalling FastBreak Reinstalling FastBreak is our number one tech support problem. Users crash hard drives, buy new computers, new laptops, etc. You MUST use the installation CD to reinstall. We have had a number of users just try to copy files to the new computer or hard drive. This will not work.
7.0 FastBreak Options and Functions FastBreak is run from the Windows environment, and your installation should have created an icon when you click on the Windows Start button and go to Programs. If you want to put an icon on your Windows desktop find the ftbreak.exe (ftbreakp.exe for Pro) and put a shortcut to this file on your desktop. Refer to your Windows manual for guidance on how to do this. Click the icon as you would to launch any application.
When FastBreak is launched, it will read all the family names in your FastTrack directories (Ft\Ftdef, Ft\Userdef, and Ft\Ft4win\Sftdef), including user created families, and load all the fund names including your FNU files. If FastBreak hits an error during the loading of your FNU files this indicates you have a corrupt FNU file. You will need to move all your FNU files from your FastTrack (FT) folder to a temporary location. Now, try to restart FastBreak.
characters such as ~,@ etc. You can also use the slider bar to the right of the family names to find the family of interest. Once the family is located, use the cursor and left mouse button to click the family. It will highlight as in the above screen. Note: The highlighted family will NOT appear in the box where you started to type the name. Note: FastBreak will read all your FNU files. When these files are made part of your trading family, FastBreak will include them in the trading strategy.
If using money market in a ranking strategy, this menu item will allow you set a minimum holding period for the money market fund before it can be sold. Many users like to set this to a short value because money market funds usually do not have a minimum hold period or short term trading fees. If you use a substitute fund in place of a money market fund, remember that FastBreak does not apply any short term trading fees to the money market. Note: The period is in calendar days not market days.
Strategy Tab Next, click on the Strategy Tab to bring up the following screen: This is the most complicated menu screen in FastBreak. This tab sets up the majority of the trading strategy parameters. Buy and Sell Strategy This may be the most difficult part of FastBreak to understand. The “Buy and sell strategy” menu is a pull down menu. Click the down arrow button just to the right of the box below the line that reads “Buy and sell strategy” to see all the trading options available.
Each choice is described below: Buy and sell using rank - This is the most often used strategy. A simple FastTrack type ranking is made on the funds in the selected family. The ranking produces a list of funds in order of decreasing gain over some specified time period. This is equivalent to using the blue pole and rank function in FastTrack. FastBreak will “buy” a fund if it is the top ranked fund and will “sell” a held fund if it drops out of the top part of the family of funds during a ranking.
other screen options. AccuTrack trading parameters will replace the ranking buy and sell ranking parameters. This will be explained later in this chapter. Buy & Sell: Long Gain * Short Gain - This option combines a long ranking period gain with a short ranking period gain by multiplying them together. This method will give weight to both long term price performance and short term price performance.
Buy & Sell: General Anchored Momentum - This option is based on work by Rudy Stefenel and published in Technical Analysis of Stocks & Commodities. See Appendix A for a detailed description. Buy & Sell: Most Anchored Momentum - This option is based on work by Rudy Stefenel and published in Technical Analysis of Stocks & Commodities. See Appendix A for a detailed description. Buy & Sell Using Alpha Ranking – This option ranks funds based on short term “alpha.
correlation check with a period of 100 trading days, then the start date will be adjusted to allow 100 days of data prior to the start date. It is important not to override the FastBreak default date. End date This is the date FastBreak will use to end the testing. The default is the last day in the FastTrack database. Use Harnsberger Option The Harnsberger Option invokes a strategy developed in cooperation with Fritz Harnsberger, a money manager in Santa Barbara (see Resource chapter). Mr.
When this option is selected, FastBreak creates an “inverse” fund for each fund in the trading family. For example, if the real fund is down 2% one day, the inverse fund is up 2%. This inverse relationship is calculated for each day in the data base. All performance data will be created with the assumption that a “short position” is held in the fund. Set sell rank = buy rank If this box is checked the number of days used for a buy ranking period is also used for the sell rank period.
Buy min, Buy max, and Buy Delta days These three parameters define all the test cases that FastBreak will evaluate as buy ranking periods. The units are market days. For example, if Buy min = 2 , Buy max = 50, and Buy Delta = 1, FastBreak will loop through all ranking periods between 2 days and 50 days or 49 test cases. Setting Buy Delta = 3, FastBreak will increment the test cases by 3 days, i.e., 2, 5, 8 ... days and this can greatly reduce the run time.
Min AT 1, Max AT 1, Delta AT1 Min AT 2, Max AT 2, Delta AT2 Note: These parameters are only visible if Buy and Sell using AccuTrack has been selected. These parameters are very similar to the Buy and Sell parameters just discussed. They are used to define the range of parameters when testing the AccuTrack trading strategy. AT 1 refers to the AccuTrack 1 Short Parameter, smoothing factor and AT 2 refers to the AccuTrack 2 Long Parameter, moving average.
EMA describe the range of Exponential Moving Average Periods used to smooth the current price. Min Buy Period, Max Buy Period, Delta, and EMA Period Min Sell Period, Max Sell Period, Delta Note: These parameters are only visible if Buy and Sell using Most Anchored Momentum has been selected. See Appendix A for a complete discussion of this strategy. Min and Max Buy Period describe the range of look-back periods to test for buying a fund. Delta is the size of the increment to use in the testing range.
User Min Hold This is the minimum number of days to hold a fund that has been purchased. Some funds have short term trading fees if the funds are held less than a prescribed minimum number of days. Setting Min hold to this number will force the trading strategy to hold the fund for at least this minimum number and avoid the trading fee. Note: User Min hold is in calendar days not market days. There are two situations when Min hold will be violated.
prices. Using the 0 delay is an estimation, and it does not change the actual day that the trades are made. FastBreak will only support delays of zero or one market day. Top % This value determines when to sell a fund or continue to hold. The value input is the percent of all funds available in the trading family that a held fund needs to sustain in order to continue to be held. For example, assume a trading family containing 28 funds, and each day all the funds are ranked over some time period.
Use signal file Checking this box will open a file selection menu, and a standard FastTrack signal file can be selected. The signal files are usually in a separate subdirectory in the FastTrack directory. This signal file requires a “buy” before any fund, except money market, can be purchased. When a signal file gives a “sell” funds will be sold ignoring all other rules including the Min hold rule. All positions will be put into the selected money market fund.
start date that corresponds to a time period when the signal file is on a buy. If using a market risk of zero (the most common option for most users) the start dates do not need to be coordinated with signal buy periods. Balance Multiple Funds This menu item allows the user to “Balance” the money among accounts if multiple funds are being held. See the chapter on FastBreak Calculation Details for a detailed explanation of this feature.
Dynamic Adjustment of Ranking Periods and Top% This option allows adjusting some parameters as market conditions change. For example, you may propose that ranking parameters should be longer when the general market is trending up, and shorter parameters used when the market is moving sideways or moving down. The way the option works is to apply the Adjust Factor when the Adjust Index breaks (moves lower) than its Exponential Moving Average (EMA) specified by the Adjust EMA Days.
Summary of Option Combinations The following table summarizes which options (POP, BOOM, and BOSS) are available with which ranking strategies. For example, all three are available for simple ranking. Note: BOSS is a stop option that will be covered in the Stop section of the manual.
Stop Loss Tab Click on the Stop Loss Tab to see the following screen: A stop loss is used to close or “stop” out of a fund position because of a stop parameter violation. FastBreak allows selection from many different stop loss functions or combinations of functions. If the fund has been held less than “STRF Min hold” when the stop generates a sell the “Short loss” value will be subtracted from the strategy returns. You can enter stop loss functions for two separate time intervals.
Trailing Loss % This is the maximum draw down an investor is willing to accept on any trade. The loss is calculated based on maximum NAV after a fund purchase. For example, if the user sets this value to 12%, and a fund is purchased for a NAV of $8.00 and later rises to a maximum value of $13.00, the fund will be sold if the NAV drops below $11.44 ($13.00$11.44)/$13.00 = 12%).
Parabolic See Appendix A for an explanation of this stop function. FastBreak allows the user to set the Start, Maximum, and delta value (shown as Acceleration on the screen) for the parabolic Acceleration Factor. Note: When this option is selected, a fund trading below its parabolic will not be purchased even though it may be ranked very high in the trading family. This is done because it would instantly be sold the next day. Kase Dev See Appendix A for an explanation of this stop function.
The value of this stop option is to allow funds with high volatility to have more “maneuver room” while keeping a tight stop on funds that have less volatility. We recommend that the Period be set to at least thirty trading days to calculate a standard deviation that is statistically significant. Exponential Moving Average This stop will sell a fund when it drops below its exponential moving average (EMA) that is calculated over a user defined “Period”.
Min ROR Sell Filter This option will sell a fund that drops below a user defined minimum annualized rate of return percentage over some user defined number of market days. For example, a user may not be interested in holding a fund that has an annualized rate of return that is less than a money market. Note: When this option is selected, a fund trading at or below the specified ROR will not be purchased even though it may be ranked very high in the trading family.
Note: When this option is selected, a check is made before a fund is purchased to verify that its short EMA is trading above its long EMA. This is done because it would instantly be sold the next day if this were not the case. Adjust Trailing Loss This option is very similar to the Adjustment factor covered earlier on the Strategy tab. The intent is to adjust the Trailing stop loss if market conditions are different. For example, in the above case SP-CP (S&P 500 index) is chosen as the index, with a 0.
Buy Filter Tab This tab contains filters that can be applied to a fund prior to purchase. As FastBreak considers a fund for purchase, the fund will need to pass any filters activated on this tab. These filters are not to be confused with the similar stops. The filters are only considered during the fund purchase process. In the Stop Loss tab, a fund will be checked against the stop during the purchase phase and each day the fund is held.
Parabolic Buy Filter If this option is selected, the fund being considered for purchase must be above the parabolic curve prior to purchase. Beta Buy Filter This option will prevent purchase of a fund that has a beta greater than specified by the filter. The index used to calculate beta is specified on the Funds/Index Tab. This option has at least two uses. One, it can be used to build trading systems that have low volatility.
types including those that may not have a high market correlation value, e.g., bonds, international etc., in a trading family and have the ability to filter those with high volatility. Min ROR Buy Filter This option is closely related to Min ROR Sell Stop. This option will prevent the purchase of a fund that is not increasing in price at an annualized rate defined by the user.
. RSI Buy Filter Many investors use the RSI to help confirm that a fund is in an up trend prior to purchase. A common value used is a trigger of 50 days measured over 14 market days. EMA Crossover Buy This option is very similar to the Exponential Moving Average Buy Filter except the fund NAV is smoothed with a Short EMA value, and this Short EMA must be trading above the Long EMA to be available for purchase. Adjust Beta Buy Filter This option is very similar to the stop adjustment covered earlier.
Output Files Tab Select the Output Files Tab to bring up the following screen: This screen allows the user to select a variety of outputs. Summary file The Summary file is the name of the file where FastBreak stores the trading strategy output. FastBreak always produces a Summary file. The user can define a path and name for this file by clicking the small box to the left of the file path. A panel will appear allowing entry of a Drive, file name and path.
ing the name and path. A description of the Detail file contents will be described later. Note: It is suggested that the detail file be created only when a single strategy is run; otherwise, FastBreak will run slower and a very large file will be created. Make Signal File Checking this box will create a market timing signal file in the FastTrack signal file format. See the FastTrack manual for complete information on signal files. The signal file can be read by FastBreak and FastTrack.
Summary Grid Tab The Summary Grid will appear while FastBreak is executing.
The file contains the results from each test case. Note: When running a single trading strategy, only one row will appear on this screen.
Detail Grid Tab Selecting the Detail Grid Tab will show the following screen only if a Detail file was selected in the Output Grid Tab (Note: you must have executed a strategy to create a detail file prior to trying to view the Detail Grid): This file contains details on each trade made during execution of a strategy.
The WHY column contains the reason the trade was made. The following table contains the explanation of the code: Code M L P K D S E B R H X Reason for Sell Momentum (Ranking) Trailing Stop Loss Parabolic Kase Dev Stop Dynamic Rate of Return Sell Signal Exponential Moving Average Better Opportunity Sell Signal (BOSS) RSI Harnsberger Short/Long EMA Crossover Note: If there isn’t a trade, the last line in the Detail screen will always show an “M” in WHY column for each account.
If you place the mouse cursor on the fund symbol of the fund that was traded and double click, the fund name will be displayed: When the bottom slide bar is moved to the far right of the Detail file, and the right side slide bar is moved to the top, the following additional information is located: 53
This part of the Detail file shows statistics on each fund that was traded in the strategy. Funds in the trading family not traded are not included.
The File pull down menu is used to open and save default files, print summary and detail files, and set preferences file. The exit menu item is used to exit from FastBreak. Selecting the Save Defaults menu item opens the following screen: This allows you to save all your trading strategy file settings into a file with a name and path of your choice. The Save Default menu item saves the settings in the file name you have previously created.
Function menu The function pull-down menu has three options. The Execute option starts the execution of a strategy. The second option is Fund Rank. After a strategy is executed the final ranking of a family can be viewed by selecting Fund Rank: If the time period used ends on the latest market date, this ranking will be the current ranking of the trading family. The *** indicates fund(s) currently held in the strategy. Clicking on the fund symbol will show the fund name.
This menu allows the user to sort the Summary Grid information in ascending or descending order by many of the fields in the Summary Grid. For example, the user may want to sort all the test cases by descending annual gain or ascending maximum draw down. Use the pull down arrow menu to select the field to use for sorting.
8.0 FastBreak Examples This chapter will run through two typical FastBreak studies, running the program, looking at the output files and looking at the FNU file in FastTrack. Note: Your results may be somewhat different because of changes in the trading family since the manual was written. Note: If you need to terminate a FastBreak run, use the Cancel button at the bottom of the Summary Grid screen. There will be a delay as FastBreak finishes the current test case.
11. “Delay” of 1 day 12. “Short loss” any value will work (Without setting a stop, or using a signal file, Short loss will not be used) 13. Check the “Set sell rank = buy rank” 14. “Start date” of 01/01/1989 (notice that FastBreak will change to 01/03/1989, the next available trading day) 15. “End date” of 12/31/1995 (notice that this date is changed to 01/02/1996, the next available trading day) 16. “Buy min” of 2 days 17. “Buy max” of 50 days 18. “Delta buy” of 1 day 19.
3. Notice that a 26 day ranking produced good results. This will be used for the next run. Note: Your results may be different due to changes in the Select family since this example was created. 4. Jump back to the Strategy Tab Second Run This run will be for a specific test case. From the first run, it was found that a 23 day ranking period looked good. This case will be evaluated in detail by changing only a few menu items from the first run. 1. Set “Min buy” and “Max buy” to 26 days 2.
9.0 Analyzing FastBreak Output FastBreak summary files can be analyzed in spread sheets (or in a companion product from Edge Ware called FastGraph) and this is where the real power of FastBreak can be realized. This example will compare the effect of changing a single parameter on return results of a trading strategy. Make sure you change the summary file name when making the two runs. Start by making two FastBreak runs, one of them can be the first example from the previous chapter.
then selecting the sort command. The effect is to put the cases in order of decreasing results. Do this for both summary files. Annual Gain, % Now, re-chart the data, but only for the best 30 test cases, and the following chart will be created: Annual Gain (best 30 cases) 45 43 41 39 37 35 33 31 29 27 25 0 1 fund 5 10 2 funds 15 20 25 30 Test Case, best-worst Now it becomes clear that holding one fund usually has better performance than holding two funds, on the order of 2-3% per year.
The difference between the curve fit lines is 2-5 % for the better performing test cases. The trader would need to determine if 2-3% per year of performance is worth reducing maximum draw down by 2-5% Finally, what are the best parameters to use for buy and sell ranking? The values that gave the best annual return may not be the best choice because that combination may have bad characteristics, i.e., high draw down, too many switches per year, etc.
ods and 39 sell ranking periods will give 1524 total test cases), or AccuTrack parameters are run, only chart the top 5%-20% of the top best test cases by charting sell ranking and buy ranking (or AccuTrack parameter 1 and parameter 2) to determine if clusters of points are formed: Best 10% of Test Cases Sell Ranking Period, Days 50 45 40 35 30 25 20 15 10 10 15 20 25 30 35 40 45 50 Buy Ranking Period, Days Clusters of points are centered about a band from 14/40 through 25/40 day ranking periods
This chart was made using FastGraph. The way to interpret the chart is darker regions have better performance than lighter regions. The chart is color on the monitor and much more informative. This chart confirms the previous chart because there are dark contour regions in the area where the points clustered in the above spreadsheet example. Although the answer is the same as the previous X, Y scatter chart, it is much easier to interpret.
We can confirm that the same range of parameters (lighter in color on this chart) give the best risk adjusted returns. It is clear from the above charts that buy ranking periods greater than 34 days and sell ranking periods less than 30 days should be avoided. The chart could have been made with delta days set to a larger value than one day to make FastBreak run faster. Once the areas of general interest are found, a rerun with a finer delta day could be made.
10.0 Building Market Timing Signals FastBreak can be used to develop market timing signal files. These signal files are in the standard FastTrack DOS format, i.e., a buy “B” or sell “S” followed by a date. See FastTrack Help for additional details. The files look like the following and are usually found in the FastTrack Sig folder: B,09/01/1988 S,06/19/1989 B,06/27/1989 S,12/11/1989 B,05/15/1990 The best way to explain how a signal file is generated is to use an example.
If you compare the signal file results with the Detail file results you will observe. Each time FastBreak sells the money market fund a Buy, i.e., “B” in the signal file, is generated. Each time FastBreak moves from one of the indexes back to money market a Sell, i.e., “S” is generated. If one index is sold and the other index purchased, no signal is generated. In other words, the FastBreak signal file stays on a Buy as long as you are in one of the fund family positions.
11.0 FastBreak Calculation Details Here are some details on the way FastBreak analyzes a trading strategy that may not be obvious; but the user needs to be aware of these details. Account Balancing This option tries to mimic the way many investors would balance their fund accounts. If the trading strategy holds more than one fund, FastBreak tries to “balance” the value of the fund accounts if the Balance option is selected on the Strategy screen.
which case it checks the second ranked fund, etc. However, if the top ranked fund is money market it can be bought again. This is considered a defensive position because money market funds can move to the top of the ranking when the entire market is in a major decline. Impact of Fund Distributions The user needs to be aware of the impact of fund distributions on FastBreak. There is usually at least a one day delay in adjusting the FastTrack data base for distributions.
FastBreak does a check to determine if the same fund would be repurchased. If this is the case, FastBreak does not take the trade. This makes the software run a little slower, but we feel it is a better representation of how a user would actually trade the system. It also has the added benefit of not charging any redemption fees on the false trades. In previous versions, when using a signal file and the signal was on a sell, FastBreak would check to determine if the money market fund was hitting any stops.
The choice of a money market doesn’t need to actually be a money market fund. Any fund, stock or FNU file can be used. Just remember that when the signal strategy switches to the “money market” fund this generates a sell signal in the signal file. This opens up a whole word of possibilities on building negative correlation timing signals.
12.0 Suggestions on Improving Trading Strategies See the Resources Chapter for a list of resources that may help you in developing your trading strategies. Precious metal funds do not normally work very well with ranking strategies. This has been noted by other studies, and you may want to consider removing these funds from your trading strategy. Some funds have similar objectives - energy vs. energy services, energy vs. natural gas, technology vs. electronics.
13.0 Trading using FastBreak Once you have determined your trading strategy and which parameters to use, you can store them using the Save Default As command from the file menu under the File pull down menu or the icon on the Tool Bar This menu item was discussed earlier. Note: Be certain your strategy dft file builds a Detail file in the Output tab. Each day you run FastBreak look at the Detail Grid Tab. This file will flag a fund to be sold with an “*” and indicate the fund to roll the proceeds into.
14.0 Batch System Processing If you have several trading systems to be evaluated each day, you can now build a “batch” file that will load, run, and save the results of all your systems. It will open a page in Microsoft Notepad that you can print. Use the Batch pull down menu: The menu choices are Run, Create, and Update. You must first create the batch file using the Create option.
screen will open that allows you to give a name to the Notepad text file. Note: If you check the Include Detail option, the batch run will put the last ten lines from the Detail file into the Notepad file. For this to happen, you will need to make certain your strategy creates a Detail file during strategy execution, i.e., you must have a detail file created on the Output tab.
15.0 Frequently Asked Questions Q) I crashed my hard drive (got a new computer, new laptop etc.) and I need to reinstall FastBreak Pro. A) This is our most common tech support call. You MUST use the installation CD to reinstall. We have had a number of users just try to copy files to the new computer or hard drive. This will not work.
and load all the fund names, including your FNU files. If FastBreak hits an error during the loading of your FNU files, this indicates you have a corrupt FNU file. You will need to move all your FNU files from your FastTrack (FT) folder to a temporary location. Now, try to restart FastBreak. If FastBreak launches you will need to determine which of your FNU files is corrupted. This can be done by moving the files one at a time from the temporary location and launching FastBreak after each transfer.
Q) My account doesn’t show the same gain or loss as FastBreak when I trade with a zero day delay? A) The zero day delay is best used when trading Fidelity Selects because they have a 10:00 am pricing. FastBreak assumes you can buy and sell funds on a given day at the 10:00 price that is equal to the previous day’s closing price. If you use a one day delay and trade non-Select funds, or trade the Selects at the 4:00 p.m. price, you should get agreement (excluding exchange fees).
16.0 Resources We have sample trading systems on our web site www.edge-ware.com. If we obtain interesting/outstanding FastBreak trading systems from our users, we will put them on the Edge Ware web site. Formula Research is a newsletter research report published by Nelson Freeburg. This publication evaluates mechanical market timing systems and trading strategies.
Appendix A - Technical Discussion Curve Fitting FastBreak uses three different types of curve fits: Least Squares Linear, Power (called non-linear on menu), and Quadratic. Linear is the most common curve fit and has the form: y = a1x + a0 Where: x : is the independent variable (in our case, days) y : is the dependent variable (in our case the normalized NAV) a : is a constant The slope is the rate of change of y with respect to x.
Now, using the slope of each equation at trading day 12 the following chart is made: Slope at Day 12 1.05 Quadratic NAV 1.04 1.03 Power 1.02 1.01 1.00 0 2 4 6 Trading Days 8 10 12 The Linear curve fit has not changed because it is a constant value for all values of x. The slope of the Quadratic equation has gone negative while the Power equation is still positive but less so than the Linear fit.
Ulcer Performance Index The Ulcer Performance Index is defined in Martin & McCann’s book The Investor’s Guide to Fidelity Mutual Funds. The Ulcer Performance Index, UPI, is a measure of risk adjusted return. It is a measure of the investment performance over money market returns compared to the amount of risk. In general, the higher the value of UPI the better the strategy. UPI = ANN - 5.4 UI Where: ANN = The compound annual return of a fund or strategy over a test period. 5.
When using the parabolic stop, FastBreak will not purchase a fund if it is trading below its parabolic because the fund would be stopped out the following day. Graphically, the mutual fund NAV and corresponding parabolic value look as follows: Parabolic 60 50 NAV, $ 40 30 20 10 0 0 NAV 100 200 300 400 500 Trading Days Parabolic Kase Dev-Stop The Dev-Stop system was developed by Cynthia Kase and is explained in her book Trading with the Odds.
looking at three days of closing prices. For example, today’s true range would be the high of the last three days minus the low of the last three days. The ATR and SD of the true ranges is calculated over a user defined number of market days. Kase has recommended 30 market days, but the user can specify any number of market days.
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.
GAM divides a smoothed recent price by a smoothed price from some number of lookback days (ranking period). The recent price is smoothed by an Exponential Moving Average (EMA). The price from the look-back period is smoothed by a Simple Moving Average (SMA) centered the price on the look-back number of days. For example, the following chart shows the case of a 3 day EMA and a 5 day SMA: GAM 2.4 EMA 2.35 NAV NAV 2.3 2.25 SMA 2.2 2.15 7 day period 19 17 15 Day 13 11 9 7 5 3 1 2.
Alpha Ranking Several users have asked for an option to trade funds based on “alpha” ranking. Most investors are familiar with the “beta” parameter that measures fund volatility when compared to an index. A common example of high beta funds is Rydex Nova. This fund has a beta of 1.5 when measured against the S&P 500 index. The means that the fund will move one and a half times as much as the index. For example, if the S&P moves up 1% then Nova will move 1.5%.
Notice there is a very obvious relationship between return and beta. The thin line is a trend line of all the data points. You will notice that there is considerable “scatter” in the data. For example, at a beta value of approximately 1.2, the annual performance for individual funds can vary from 19% to over 27%. Alpha ranking has the intent of trying to purchase the fund with superior performance at a given level of beta.
