## How to Use this Tool

It has been demonstrated that buying and selling equities in certain prescribed ways tends to increase one's returns over time. The most commonly employed such strategy is Dollar Cost Averaging (DCA). An alternative is called Value Averaging (VA). This app was created in order to test equity buying and selling strategies such as these.

The Ticker Symbol field links directly to the Yahoo.com Finance site to download a .cvs report for the date range entered. At this time, the reported fund prices are weekly, and cannot be changed. Hence, price changes are from week to week. The field only accepts ticker symbols, with an optional two letter Exchange designation (e.g., TO for Toronto Stock Exchange). If you need to perform a symbol lookup, you may do so on the Yahoo.com Finance site.

The Benchmark Fund Start Value field sets the lump sum to start with. That amount will be invested on the Start Date provided and it's final sum will reflect how much that amount of money would be worth by the End Date.

The Strategy Fund Start Value sets the lump sum to start with on the account that will apply the buying and selling strategy. I would generally recommend that both the Benchmark and Strategy fund start values are identical for an accurate comparison.

When funds are sold, the go into a Side Fund account. The Annualized Side Fund Interest Rate sets how much interest the account will earn on an annualized basis. At this time, a typical rate of return would be between .25% and 2.0% - maybe more or less, depending on your country's economy.

The Period Start and End Dates determines the investing time frame. Manipulating these values can alter the investment type from shot to long-term.

### Standard Deviation and the Deviation Threshold Field

In this first version of the Simulator, buying and selling decisions are based on the Deviation Threshold Percentage. The Deviation Threshold Field accepts a percentage value that triggers purchase and sell events whereby a Weekly Percentage Change above the percentage value signals a sell and a Weekly Percentage Change below the percentage value signals a purchase.

The image below shows a sample distribution for the S&P500 where the blue line represents a fine-grained distribution and the red line a more typical bell curve. On the Y axis, we have the Weekly Percentage Change. The X axis measures the number of occurrences at each Percentage Change. The thick black line highlights the most common change at about 1.3%. We can also see that the most common range of weekly changes is between plus or minus 1.5%.

Anything outside of that plus or minus 1.5% range represents a more rare event and should eventually result in an eventual regression to the mean. In fact, one could assume that the further we go from the mean, the more likely a return to the mean will occur at some later time. At least that's the theory! This app helps us answer that assumption.

A good read that I found on Standard Deviation can be found on this site.

Using the Buy and Sell radio buttons, we can test what effect removing the buy or sell actions have on the strategy as well as answer the question as to whether buying or selling plays more of a role than the other in the resulting performance.

All trades come at a cost. Broker Fees can range anywhere from $6.99 to $39.99 or more and should be accounted for. The Broker Fee field accepts the exact dollar amount up to $99.99. Entering a value of zero or leaving the field empty are permitted and can illustrate the difference that Broker Fees make on the overall strategy.

### A Word about Margin

When used properly, the judicious use of margin *can* enhance returns. On the other hand, they can also erode one's capital entirely away when things go awry! Why not test its effects here rather than with real money?

The Use margin? checkbox will determine whether or not the following margin-related fields will be applied.

The Annualized Margin Rate is similar to the Annualized Side Fund Interest Rate except that the former sets how much interest the account will incur on an annualized basis. Hence, the higher this value, the more money will be lost to interest charges. The interest rates for borrowing are almost always higher than those paid out on interest bearing accounts. Typically, one would expect to pay at least two percentage points higher than that of the Annualized Side Fund Interest Rate. Entering a value of zero or leaving the field empty are permitted and can illustrate the difference that the Margin Rate makes on the overall strategy.

There are two types of Margin Limits to choose from. The first is the fixed Total Dollar amount, whereby a sum of $0 to $999,999.99 dollars can be entered. Of course, at the higher end of the scale, such a high limit could be considered as no limit. The other, Percent of Account, option is more typical of Margin accounts available from brokerage houses. Choosing this option will enable the triggering of margin calls whenever the margin amount rises above that of the investment account, as ascribed via the Percent of Account field. Thus, entering an amount of 50% would mean that whenever the margin exceeds fifty percent of the value of the strategy fund, the application will sell whatever amount of funds are required to cover the difference. For example, if the margin rose to $6,240 (52%) of the investment funds' value of $12,000, then the excess of $240 would be sold immediately to bring the margin level back to the limit of 50%. As a general rule of thumb, margin calls are bad for investment returns!

This application is for entertainment purposes only. Any results obtained are not to be taken as a substitute for professional investment advice in any way, shape, or form. Since it uses backtesting exclusively, there can be no guarantee that results would be indicative of future performance.

**This will be an ongoing project, so I would appreciate any feedback that you might have, whether it be bug reports, suggestions, feature requests, or just general comments! Email me at: rgsonsulting(AT)robgravelle(DOT)com ** (Don't forget to replace the (AT) and the (DOT) with the '@' and '.' characters!)

## Change Log

### Sep 2012: Beta Version 2

- Added benchmark vs. strategy fund comparison chart using PlotKit. Not supported in IE 8 and below.
- Added function to divvy the broker fees between the strategy fund and and side fund. The latter takes precedence so that funds are not drained unnecessarily from the strategy fund. Margin may be used on purchases, but not on sales.
- Added minimum transaction amount of twice the broker fees in order to avoid minuscule transactions.