Not an exact science

You've got to know when to hold 'em; know when to fold'em; know when to walk away; and know when to run - Kenny Rogers.

Backtesting is not an exact science, and has its limitations. At times, it can be said that the best computer is the the one between the ears.

One limitation that I only discovered recently was regarding company M&A. I realised yesterday that 2 out the 10 companies that I purchased this week were under takeover offers. So I was wondering how TradeSim handles these situations, because, I want to stick to the plan which was backtested with the least degree of deviation as possible; so I have the most chance of realising similar results.

Well TradeSim is only as good as the data that you feed to it; and data is simply 5 values for each bar. It cannot in any way account for company decisions. So when a company is delisted i.e. stops trading for any reason (merger with another company, script takeover, cash takeover, change of stock code, bankcruptcy), then TradeSim will close the position on the last bar it traded, the trade will be found in the TradeSim trade database as an open trade, and the price will be at the price it last traded (regardless of how long ago that was).

It will be marked as an open trade to differentiate from those trades that were closed out because they hit the protective stop or triggered a normal exit.

So it is upto me how to deal with these company M&A situations. I think at least for now, I will just leave the positions as they are, but will reassess the situation periodically.

I will not be updating the portfolio this week because all exits (as are entries) are delayed by one bar, I will have to check at the close of the next bar, which is next week, to see if any stops or exits were triggered. And I won't be running a scan (exploration) for any new candidates because all my capital is already in open trades anyway.

I notice there's some media articles regarding next week being the 20th anniversary of the 1987 crash. Some commentators say that this may well be a cause of market "jitters" next week. I guess that sort of news sells newpapers.