Annualized Returns of Trading Strategies for CPN

This table shows the results some simple trading policies from brute-force calculations on every trading day during the last 9 years. The concept of stops does not apply to the top few entries, which are various flavors of the well known Buy and Hold strategy. Although this venerable strategy is frequently praised, in the most simple form, it failed for this company, with a loss of -20.00 %.

The most basic flavor of the Buy and Hold strategy is tested by buying on every day of the period, then holding all the way to the present date. A less simplistic version might involve the momentum investor's ploy of buying only on rising prices, or the more contrarian tactic of buying on the dips.

Our tests show it is generally better to buy on the dips rather than trying to follow the momentum of the market. But CPN is an exception to that rule. Sadly, neither of these policies were able to match the unadorned Buy and Hold in this somewhat unusual case. The best of these strategies trigger the buy on technical indicators.

All the buy and hold strategies suffer from a dangerous defect, as they do not cut losses. The statistics underestimate the harm of this defect, because market statistics are based on companies that survive. Doctors bury their mistakes, but Exchanges de-list them.

From the Report Dated 12/5/2005: At least from the standpoint of a single company strategy, the best setting over the past 10 years has been -33 percent for CPN when adjusting stops weekly. This setting has produced a historical yield of 299.00 %. (The yield during the holding period is annualized to provide this figure).

How to set sliding stop limits for Calpine:

Stop loss limit orders would appear to be almost always desirable. But where to set the stop limit is controversial. Setting to limit too low may allow for too great a loss. But setting the limit too high may cause the trade to "stop out" prematurely, perhaps missing a rally and also incurring an unwelcome brokerage fee.

Two issues need to be settled in arriving at a stop limit strategy. The first is to determine the price to position the stop loss at a percentage below the buy-in price. The second is to determine a strategy for raising or sliding the stop to lock in gains without undue risk of prematurely "stopping out" on some insignificant dip in price.

Technical Buy Signals and Trailing Stop-loss