What minimum market capitalization do you prefer for backtests on Fat Pitch Financials?

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What minimum market capitalization do you prefer for backtests on Fat Pitch Financials?
$50 million (old minimum)
$1 billion (new minimum to match S&P 500)
Other
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4 thoughts on “What minimum market capitalization do you prefer for backtests on Fat Pitch Financials?

  • March 19, 2016 at 7:33 pm
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    I think a more important factor would be the liquidity filter on P123.

    I’m not fond of the liquidity filters that use AVERAGE daily trading values. I’ve seen too many cases where a surge in trading on a stock can temporarily run a stock’s liquidity up. On some of the AAII screens, I’ve looked at picks that passed the average daily trading liquidity tests, yet had some days in the previous month where few, if any, shares were traded. To me, that is not a stock I’d want to include in a backtest.

    Instead, I use a MINIMUM daily trading value for the past 50 trading days:

    LoopSum(“Vol(CTR) * Close(CTR) > 2000000”, 50) = 50 // Liquidity check

    If a stock passes such a liquidity check, market capitalization isn’t nearly as important.

  • March 20, 2016 at 5:27 pm
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    I agree with Randy Harmelink that minimum trading value may be better than capitalization. For example minimum 20k usd daily volume past 1 month.

  • April 21, 2016 at 11:18 am
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    Randy,
    Thank you for sharing that formula for minimum daily trading value. I’m now using something similar for my backtests.

  • April 21, 2016 at 2:09 pm
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    I use it in almost all of my screens and backtests. It does slow them down a bit though, so I usually put it after the first few rules that cut down the size of the remaining universe. I just got so frustrated with the “average” rule, because so many stocks would come through that couldn’t be trusted to be liquid. And it’s easy to customize for different amounts and time frames… :)

    That actually came from Portfolio123 when I asked about a minimum instead of an average.

    They just recently added a LOOPMIN() function that might be easier to use. Or, six of one, half dozen of another.

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