Rating Function

When you have Rating(“RankName”) in the buy rules. Will the simulation first rank the stocks based on the Rating function and then the rank specified in the simulation? So if you wanted to do value-momentum strategy, Rating(“Value”)>= 90 will give you stocks in the top 10% based on value. Then the sim will rank the stocks based on the momentum ranking system specified in Universe and Ranking?

I’m a little confused.

Thanks

Yes, that’s correct. Rating(“…”)>X is a buy rule, just like PE<X etc. The ranking system i used to sort the group of stocks that remain after all the buy rules have been applied.

One wrinkle, though. You can have a Buy rule that says Rank>x. Here, you will be using – to take your example – the momentum system, the same one you use to sort the list of passing stocks. IOW, the same ranking system would be used in two different ways. There may not be many contexts in which you’ll want a Buy rule to say Rank>X, since it’s likely that the final sort of 10-30 stocks will result in all of them being well above X. More typically, the Rank function is used in Sell rules; e.g., Rank<Y. But you might use it in a Buy rule, if, for example, you don;the trust the uppermost extremes of your ranking system. With growth for example, the top 10 companies might all (or often) be those in which results are temporarily inflated by unusual gains. So if you have a Growth ranking system, it could be reasonable to have a Buy rule such as Rank<95.

Just to be clear… when the Rating function is used in the buy rules of a simulation it is applied to the universe that is selected on the Universe and Ranking tab. Correct? The language above seemed to imply that is applied to the universe of stocks that remains after all the other buy rules have been applied.

Rating indeed ranks all universe constituents (including positions if “Force Positions into Universe” is on). I believe Marc was trying to indicate that he further filters out stocks by intersecting his picks with the top picks of another ranking system.

From my experience, if I have a sell rule of rank<80, then (typically) I use a buy rule of rank>80; otherwise I can potentially get a lot of Buy/Sell Difference trades (in the transaction history) and it drives up my turnover (it does not happen all the time but enough to be something I look for). I think it goes into some kind of oscillation if I don’t have the buy rule that matches my sell rule.

I like Mark’s /Aaron’s comments on this for further clarity.