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The Official Blog of Retail Backtest
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Entries for date "June 2017"

Everyone's Report Card... Ouch!

Some months have passed since the start of this blog, and throughout those months the stock markets of the world (particularly of the United States) have done rather well. In the US there has been a strong rally since the November 1 of 2016 monthly chart low that has amounted to a whopping 17% gain— in SPY, the ETF that tracks the S&P500 index, as of June 1, 2017, if you had reinvested dividends.

A benchmark that's up on the Retail Backtest website that is based on 10 major ETFs of developed nations is up about 12% over the same period— again that's with dividends reinvested (total return). And so you may ask, "And how is the smarty-pants Proprietor of Retail Backtest doing with his project?" Or, "How are the smarty-pants hedge fund managers and their 'quant' buddies doing?" You had to ask!

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Whipsaws and Stop-Loss Trading

You hear occasionally, in trader talk, the word "whipsaw". While the word can refer to any sharp oscillatory price action in the market that is being traded, it also refers to traders panicking out of losing positions and then having to get back in at prices worse than the exit prices. "Getting whipsawed" is bad!

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The basic message is that the whipsaws are an unavoidable complication— their deleterious effects on your account equity are difficult to minimize and impossible to utterly eliminate (if you trade in and out of positions in a stop-loss manner). And I'm going to explain that a famous formula actually quantifies whipsaw losses and makes them into the price of a certain contract, via an algorithm of course.

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