Annotated Models
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For AOL Time Warner, NeuroStrategy was able to develop an exceptionally interesting strategy model. The stock actually belongs to the range of potential problem cases, since it exhibits an extreme trend over an extended period. In the years since 1993, the stock has managed a gain of 22,745%. Truly alarming downward phases occurred in 1996 and, of course, in the production period of the year 2000.
This type of security can pose a problem for NeuroStrategy. On the basis of the historical data, the software must learn the strategical approach, and it learns by means of examples. If you imagine a stock that gains permanently throughout the entire training period, it would be impossible for the software to learn strategic trading with this stock, since there would be no examples of days where short positions would have been the prudent choice. Hence, we generally advise against using NeuroStrategy to manage such securities.
In the case of AOL Time Warner, however, NeuroStrategy has a surprise in store. In spite of the extreme trend, the software was able to develop an outstanding strategy. This is substantiated by spectral analyses: the stock exhibits recognizable cyclical behavior and displays clear, assessable, recurrent patterns. Thus, NeuroStrategy is able to develop a trading strategy with almost linear equity development, which is continued uninterrupted during the productive period.
A closer look at the period of production reveals that NeuroStrategy also handles the break in the development in 2000 without difficulty.
Even broker's fees of 0.18% and fixed costs of US$ 5.00 per transaction hardly change the picture. The strategy is very accurate, and mistakes are rare. As can be seen in the following chart, the equity curve levels off, but remains virtually linear. In this case, NeuroStrategy's risk management has shown itself at its most successful.
The signal chart shows this clearly. NeuroStrategy avoids taking full positions. Although the development of the stock still follows characteristic patterns, as were established during training, the long-term downward trend signals danger. NeuroStrategy reacts to this altered situation with smaller positions but still seizes most of the potentially profitable opportunities.
With the characteristics of this strategy model, the stock commends itself for fee-exempted traders as well as for ambitious medium-term investors and for funds. The security is exceptionally well suited for technically assisted trading. During upward phases, the strategic approach still significantly improves upon already substantial returns. During critical phases, on the other hand, NeuroStrategy allows the investor to continue the engagement with a balanced approach to risk, without having to accept a slump in equity development.