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Hi Nick,
Excuse me for butting in here, for I am not anywhere near as
knowledgable as those who have so far replied to your query, but am
also interested in understanding the issues involved. It seems to me
there may well be some basic misconceptions occurring regarding your
use of PositionSize in AFL, which I describe below (inviting
corrections to any errors of my own):
1) In AB, PositionSize = dollar amount (eg, "Positionsize = 10000;")
or a percentage of equity (eg, "Positionsize = -10;" defines
Positionsize as 10% of Initial Equity), not number of shares. This
alone may cause a huge variance in the results you see when comparing
the use of to non-use of the Positionsize variable in your tests. The
results returned from the use of PositionSize defined as a number of
shares (so much smaller than it should be because the dollar value has
been devided by the share's close value) cannot be compared to the
Backtester's default use of total Initial Equity (as a dollar value).
2) In Backtester Settings, the accompanying Allow PositionSize
Shrinking switch may also affect your results, depending on whether
your equity dips below the Positionsize declared in your AFL. If it is
OFF, the tester will continue to apply trades to the value of
Positionsize with non-existent equity.
3) As returns shrink through the use of money management
(Positionsize), the impact of commissions and brokerage can be much
greater, turning reasonably profitable but small theoretical trades
into real losses.
If all of the above were to affect your tests at the same time, I'm
sure the result could be as devastating as those you describe.
I apologise if my observations are incorrect and I am but muddying the
waters, but hopefully some clarity will arise soon.
Regards,
Mark
> -----Original Message-----
> From: n94612 [mailto:nkm@x...]
> Sent: Tuesday, 22 October 2002 8:02 AM
> To: amibroker@xxxxxxxxxxxxxxx
> Subject: [amibroker] Re: PositionSize Variable - Help - Inexplicable
> Results
>
>
> Hello Ken,
>
> Thanks for the quick reply.
>
> I did do many repeated runs with many varied position sizes and
> repeated runs with the postionsize commented out.
>
> While I understand and agree with your statements, what I'm not
> getting is :
>
> If AB uses your total equity on each trade ( if you don't use
> PositionSize) then, if you DO use PositionSize and set the
> number of
> shares to TotalEquity/Close, then the results of the two
> runs should
> be identical, but in all my tests, they are not. I do not
> understand
> why this is so. I must conclude that I am either suffering a
> misunderstanding, making an error, or there is a problem with
> PositionSize implementation.
>
> Have you tested this yourself? Does it work OK for you?
>
> Again, thanks for your input and lightning response.
>
> Regards,
>
> Nick Molchanoff
>
>
> --- In amibroker@xxxx, "Ken Close" <closeks@xxxx> wrote:
> > This explanation is correct.
> >
> > If you do not have a positionsize statement in, and your
> system "works" -
> > has a positive expectancy, and you set the report to show every
> trade, you
> > soon see that you are investing more and more on each trade. You
> might do
> > this in real life, but I do not. When I put in the positionsize
> amount, it
> > is a realistic amount that I would place on each trade.
> I make it
> stay the
> > same for every trade, but of course it can vary.
> >
> > Run the test with the positionsize line commented out, then again
> with it
> > in, and of course you see a big decrease in total profits
> (percent
> or
> > absolute). Which one would you actually trade?
> >
> > Ken
> >
> > -----Original Message-----
> > From: akaloustian [mailto:ara1@x...]
> > Sent: Monday, October 21, 2002 4:50 PM
> > To: amibroker@xxxx
> > Subject: [amibroker] Re: PositionSize Variable - Help -
> Inexplicable
> > Results
> >
> >
> > The position size limits your profita as it is decreased.
> >
> > The %profits are computed based on total starting equity.
> >
> > So if your starting equity is $100K and positionsize = $20K gives
> you
> > a profit of $10K, that becomes 10% return.
> >
> > If you remove position size, each trade uses all of the capital
> > available, so the return will be significantly higher.
> >
> > Check your setting to see your starting amount available
> >
> > Ara
> >
> > --- In amibroker@xxxx, "n94612" <nkm@xxxx> wrote:
> > > I've been studying position sizing / money management
> for about a
> > > month or two now, and have been following most of the recent
> > postings
> > > on Money Management with great interest. My understanding is
> > > increasing, but I have been having some inexplicable results in
> > some
> > > backtests and explorations that I have been running as learning
> > tools
> > > regarding position sizing, and I sure could use some help or
> input:
> > >
> > > Like some others of you out there, I noticed that whenever I add
> > > position-sizing code to any of my experimental systems, the
> percent
> > > gain drops WAY down.
> > >
> > > For example, in one particular test using a Dip-Buying algorithm
> > > translated from Wealth-Script, the results were +18.54 with no
> > > position size statement in the code and only +0.07% with Tharp's
> > > volatility based stops set at a generous 5% of total equity.
> > > Lowering the % of TE to the recommended 1 or 2% resulted in
> further
> > > degradation of results, (1% : -0.02%loss and 2%: +0.00%
> negligible
> > > gain.) This did not surprise me as I had already
> read that many
> > of
> > > you had the same or similar experiences with severely impacted
> > gains
> > > in your own backtests that also were resultant from adding
> position
> > > sizing.
> > >
> > > However, I then determined to try to get an idea at what
> percentage
> > > of total equity risked with Tharps volatility, WOULD the results
> > come
> > > near to those obtained with no position sizing. That's when I
> > > discovered that it made almost no difference whether %TE risked
> was
> > > 0.1%, 0.2% or whatever, even at 10%, 25%, 33%, 50% and 100% of
> > total
> > > equity risked, the results were still enormously
> degraded compared
> > to
> > > those without explicitly coded position-sizing. That just didn't
> > > sound right to me.
> > >
> > > Growing suspicious, I then proceeded to test a wide range of
> fixed-
> > > dollar-amount sizings, and fixed-share-amount sizings, all with
> > > similarly degraded overall results as the
> Volatilty-based sizings.
> > > I found it made no significant difference whatsoever
> what position
> > > sizing scheme or formula I employed -- What I found was...
> > >
> > > ---As soon as the PositionSize variable is added to the code,
> the
> > > percentage gain results decrease dramatically. All of
> which leads
> > me
> > > to wonder...
> > >
> > > 1) What is the default for position size used in AmiBroker's
> > backtest
> > > calculations when the variable is NOT declared? Anybody know?
> > >
> > > --I don't think it's total equity from Settings because I tested
> > for
> > > that -- when I use the PositionSize variable using
> "capital/close"
> > > (total equity as position size) the results are still way down
> > (over
> > > 95% down) from teh non-declared sizing results, and if
> that is so,
> > > how can the non-declared sizings result in such better gains? It
> > > doesn't make sense.
> > >
> > > 2) Why can't these non-position sizing results be approximated
> > using
> > > ANY position-sizing formula when the variable IS
> declared? I have
> > > been wracking my brain on this, to no avail.
> > >
> > > Anybody else tried anything like this? If so, did you
> notice the
> > > same thing. I mean, I can ceratinly see where capping
> ones risk
> to
> > a
> > > small percentage of total equity, and the resulting inevitable
> > > decrease in position sizes, especially for very volatile issues,
> > must
> > > have SOME negative impact on profits and backtest results; Less
> > Risk-
> > > Less Profit; it's the price of insuring against
> catastrophic loss,
> > > and would be more pronounced the shorter the hold-time of the
> > system,
> > > but this effect should not occur with fixed-share or
> fixed-dollar
> > > sizings, at least not to the same degree. And, it seems to me,
> > that
> > > at SOME parameter range, the results using the "PositionSize"
> > > variable should approach and eventually approximate the
> default(no
> > > explicitly declared position size variable) gain
> percentages. But
> > > apparently, judging from the results of my own testing anyway,
> this
> > > is not occuring, so how are the better results without position
> > size
> > > declaration even possible?
> > >
> > > I'm baffled. Please anybody, help, comment, question, share
> > insights.
> > >
> > > If anyone out there gets interested enough to take the time and
> > > trouble to test some of their systems - not necessarily with
> Tharp-
> > > style volatility based position sizing - but with a similar wide
> > > variety of simpler, more "vanilla" share-based or dollar-amount-
> > based
> > > sizings, I'd sure love to hear what you find out.
> > >
> > > I'm hoping that this is some error or misunderstanding
> on my part
> > and
> > > not a problem inherent in the the PositionSize variable
> > > implementation, but on the off-chance I've
> inadvertantly uncovered
> > a
> > > glitch of some sort, it'd be a good thing to get to the
> bottom of
> > it.
> > >
> > >
> > > Respectfully,
> > >
> > > Nick Molchanoff
> >
> >
> >
> > Post AmiQuote-related messages ONLY to: amiquote@xxxx
> > (Web page: http://groups.yahoo.com/group/amiquote/messages/)
> >
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> >
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