Trading Strategy Analysis of GPS |
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Annualized Returns of Trading Strategies for GPS
These figures represent the annualized yields from several strategies for GPS, conducted mechanically for 10 years. The top lines of the table show results from several variations on the classic Buy and Hold strategy, for which the concept of stops does not apply. This much used strategy yielded 5.00 %. 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. Generally, we have found the Buy-On-Dip policy to offer better returns than the Buy-On-Rise. That is true in this case, indicating some of the benefit of betting against the crowd when investing. Both strategies offer improvement over the unadorned Buy and Hold. Some stocks just do not seem to respond in a normal way to the usual technical signals. Here a signaled buy and hold offers no improvement at all! Strategies lacking a stop-loss policy are too dangerous, given that every stock, sooner or later, will become worthless. From the Report Dated 11/11/2010: At least from the standpoint of a single company strategy, the best setting over the past 10 years has been -2 percent for GPS when adjusting stops weekly. However, setting stops this close can result in excess transactions. The best stop wider than 10 percent is -21 percent. This has historically produced a yield during holding periods that annualizes to -5.00 %.
How to set sliding stop limits for The Gap Inc.: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.
Some would advise you to set the stops at what you feel to be an acceptable loss. However, "feeling" is an extremely misleading guide. These charts are the output of a "brute force" calculation giving results for every stop loss setting from one percent to fifty percent on every trading day of the past ten years. The bars represent the annual percentage appreciation achieved for each stop loss setting. This percentage is numbered on the right (blue) axis. The purple line depicts the number of "stop outs" on average per year at each stop loss setting . Transaction costs directly relate to this number on the left (purple) axis.
These charts represent different strategies for "sliding" the stops to lock in gains. The first simply moves the stop up every day to the pre-determined percentage below the close price. The others move the stops up at the end of every week, and at the end of every month. Generally speaking, it seems better to move the stops less frequently than daily. |  Subscribe More than 70 Hi-Rez charts daily for The Gap Inc.: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Technical Buy Signals and Trailing Stop-lossTrailing stops set at -18.00 %
Total Session Units Invested 4440 Sessions In Time Span 2398 Avg. Units Invested 1.85
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