Dynamic Money Management

["Al Venosa" <avcinci@xxxx>]

Tomasz:

Yesterday, I posted a message on Van Tharp's forum about your plans 
to incorporate innovative money management and pyramiding techniques 
in a future version of AB. Below is a response from a user of Trading 
Recipes, who claims that TR is the only software that handles MM 
corrrectly. Here is what he said:

"It DOES position sizing. the RIGHT way. I own the program and it is 
GREAT. It took me about 5 minutes to get over the fact that it is 
still a DOS based app. But it's really the ONLY tool that does it the 
correct way.

I talked to AmiBroker about 6 months ago, and they told me the same 
thing. Plus once they do release the program with position sizing, it 
still has to be proven that they have done it right. 

There are three other companies that I know have that have tried to 
do position sizing. Two of them got it wrong. www.rinasystems.com and 
www.bhld.com

The third is the athena program that is mentioned in Van's book. I 
haven't ever had the privilege of playing with that program, but I 
believe I read somewhere that it used output files from trade 
station. So, it would also fall into the category of a program that 
isn't truely implementing position sizing at the portfolio level like 
Trading Recipes does."

To explain what he meant by doing it 'the right way', here is what he 
said: 

"TRADING RECIPES' approach lets you combine trading signals and trade 
sizing strategies into simulations which exactly mimic the way you 
would trade in real time. A core feature, which sets it apart from 
all other "money management" (or backtesting) software, is its 
ability to perform dynamic money management (DMM) and risk control at 
the portfolio level. With DMM, position sizes are determined with 
full knowledge of what's going on at the portfolio level at the 
moment the sizing decision is made. Just like you do in reality. 
Other software packages simply sum individual pre-calculated equity 
curves. This way, position sizes are calculated with no knowledge of 
what the current portfolio conditions are at the crucial moment when 
a position sizing decision is to be made. This is not how you would 
make decisions in reality and therefore such simulations offer no 
useful information to the trader. DMM avoids this pitfall."

TJ, will your approach be able to do DMM as described above? 
Personally, I have no desire to use any program based on DOS. I think 
the position sizing algorithm now included in AB does almost what 
this guy describes except for scaling in and out of trades and basing 
one's decisions on the value of the entire portfolio of multiple 
stocks rather than a portfolio of one stock. 

Al V.