Any progress with stop loss tests?

[Tom Swift]

Has Super Stock Picker done any backtesting on stop losses yet? So far my picks based on v4 have been great but I am wondering about setting stop losses or a VTSO. Any conclusions yet?

[burd]

Hey Tom,

      I have back tested the V4 momentum to see what would happen if a 10% stop loss was implemented on all the orders. If the stock went down by 10% it would be sold at that price. I only checked the stocks that closed at a profit because the losers would have been sold at -10% or less. I found the stop loss would of been triggered 11 times. 9 times the stock went lower and was sold at over -10% by the super stock picker. The 9 stocks were sold by the super stock picker at a loss of in between 10%-29.62%. The other two stocks that were sold at the stop loss of 10% were aga-up 30.87% and cux-up 147.22%. Both of those wins would have been missed but 9 losses of about 10% would have been saved. The aga stock went down buy about 20% before it went back up and cux stock went down by about 15% before it went back up.
   Maybe a stop loss af 15% would help stop some of the big losses. 6 stocks lost more that 15%.
I think I may just stick to buying and selling exactly when to picker does and that way it takes the emotion out of trying buy at the right time. If the stocks go up by another 100% in the next year i think I would be very happy with that.
   
Just another note: I noticed most of the stocks that closed at a profit did not go down very much after(1%-7%) they were  bot by the picker. It was to hard to check at a 5% stop loss.

B.

[jeff]

"stop loss" is very tricky. I guess we all noticed/experienced that a lot of stocks had big sell-offs shortly before their  huge rally. we call this "shake out" or "bear trap". some stocks had sell-offs in the morning, let's say down over -10%, but by the end of day it recovered all the losses and maybe even gained 5 or 10%. This is actuelly very bullish. but if you cut the loss and stopped out in the morning, I guranteed you that you will miss big gains.

so my point is: there is nothing wrong with stop loss. but if the stock you just sold refuse to go down any further and started to go higher, please admit your mistake, correct your mistake and buy it back. unless you have other better buying opportunities, but that's a different story.

Jeff

[Super Stock Picker]

Hello burd,

First of all, thank you for your valuable contribution. It may have taken you some time to get those results.

Also, as far as I can see it, my guess is that you have done this work hand, haven't you? You should have used our historical orders page and check which stocks would be affected by stop loss orders, is that right?
That brings in valuable info to know in which direction to dig further investigations. Our target is to make this stop loss back testing automatic so we can run a lot of scenarios once the tools are in place.

When you did those tests, were you able to come up at the end with the performance the portfolio would show up if the stop loss had been applied? That is another parameter we want to highligth with our automatic tests. Because, you know you gained on one side and lose on the other, but what about the overall score?

About the strategy you applied, I understand that you had trailing stop loss order, but when were they updated? Was it based on every closing prices? Or was it from the last highest price hit?

More intensive tests should give a better view of which way to go. Your first results seem to indicate that it can be setup with a threshold (fixed) below the buy price (ex -15%) and then another threshold (trailing) for orders that are already showing a profit (ex -5%/-10%).

We will investigate that soon...

[burd]

Hi,

        I back tested the V4 historical orders. All I did was plot the buy points on a chart of all the stocks that closed at a gain in the V4 momentum. most of the stocks went up right away and were closed at a profit. The ones that went down after they were bought usually closed at a loss. I was just trying to figure out how to prevent the 15%-29% losses. I back tested with a 10% stop loss(sold once hit -10%) and found the returns are about the same because 2 large gains were missed with 9 smaller losses saved. I don't have graph software I just did the math on paper. one strategy may be to sell any stock the drops 10% unless it comes back to its buy price, then it would be repurchased at the screener buy price. That way the 2 large gains on cux and aga would have not been missed.
       The more I study the the V4 the more I think it works pretty good the way it is. Its not easy to get 350% in 2 years!. I have bought some of the low peg stocks and may start to a buy the V4 just the way it is.
thanks

B.

[bryanmcn]

Hi all
In my opinion stop losses cannot be set based on percentage. Stocks fluctuate by different percentages depending on their price. A stock trading at $1 may move up and down by 10% in one day but a $50 stock is unlikely to move that much in a week.
One alternative is to use "position sizing". You determine the stop by determining what percentage of your total potfolio you are prepared to risk in any position. For example if you wanted to buy a $10 stock that fluxuates by 50 cents over a week or two, and you were willing to risk 2% of a $100,000 protfolio ($2000), you could buy 2000 shares and set your stop at $9 (twice the daily fluxuation).
Another option is to set your stops at technical support ranges (or just below) and adjust your position accordingly.
I'm not good at explaining this but Dr. Van Tharp does an excellant job on his web site.
http://www.iitm.com/
Or you may be able to find something on Wikoppedia.

IMHO
Good luck!