May 30, 2011

This new test is based on the QQQ and QID Trader (2007) A trading script found on the old Wealth-Lab 4 website. The original script barely beats the Buy & Hold strategy over the 5.83 years of the test (results will be provided shortly).

A number of modifications, to change most of its trading philosophy, and methodology was applied to more closely resemble mine. This underlying accumulative inventory stance changed the very nature of the script.

Improvements can only be called improvements if they can be compared from a common base. In this new test, the same testing conditions as in the first implementation are applied (43 stocks with $100k each). As in the prior test, a small position is taken initially and then the program tries to accumulate as many shares as the available equity allows. Full utilization of the excess equity buildup is permitted. However, from observation, it is not always fully used.

Here are the test results:

 QQQTrader Table

(click to enlarge)

To accomplish the above level of performance, more pressure was applied to the trading component than in previous tests to such an extent that it produced most of the profits. The numbers are quite remarkable: over 90% compounded annual return.

To achieve similar numbers as the test, it was required to set the parameters for the simplified Alpha Power equation to the following values:

QQQTrader equation

 (click to enlarge)

Based on the results, most of the emphasis has been on the piggyback trading module to produce higher returns. The efficiency of the trading module at generating excess equity is remarkable.

Looking at the table above this is not a minor modification to an old script that is in operation here. It must be that the changes applied changed the very nature of the script.

Note that only 1 of the 43 stocks is still underwater. And since the methodology is basically a Buy & Hold routine, you can wait (hold) for better days as this particular position is a very small fraction of the total. One could also accept the loss and simply move on!

Also, note that 6 of the tested stocks had zero stop losses. The winning trade ratio is almost 95%. This particular model (0.5) was still at level 0, with no covered call program and no leverage applied.

Here are the corroborating charts produced using the old Wealth-Lab 4 website simulation software:  

(click to enlarge)

AAPL ADM AGQ AMZN
BHH BIDU CCK CF
CMG CRDN CSX DBS
DDS DIT ERX GLD
GTLS IBM IMAX IPGP
JNPR NFLX NTES PAAS
PANL PCLN SCCO SINA
SLV SLW SOHU SRZ
TBL TDSC TRMB TRN
TSCO TZOO ULTA URI
WLK WTW XOP  

( click to enlarge)

Created on ... May 30, 2011, © Guy R. Fleury. All rights reserved.