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As far as I know, expectancy is nothing to do with the position
sizing. You do need a system with positive expectancy to do you any
good in doing positon sizing ;-) But, how you calculate it is nothing
to do with the postion sizing.
It is a more or less standardized measure to see how good a system
performs (so that it is easier to compare with other systems) but
with enough history to test, you should know whether your system is
any good.
Also, good position sizing does NOT make your system robust, make
sure you know your testing. It only gives you much better CHANCE to
survive long enough for you to earn and enjoy your EXPECTANCY returns
promised by your robust system. (Other than tax and death, nothing is
guaranteed!)
By the way, I forgot to mention in the previous message, this
gentleman (Mark Jhnson) provided at least 3 good FREE systems there
on the trader club board, all with test records. Spent your time
there and you should be well rewarded (If you are looking for good,
free, trading systems or position sizing education). Those systems
are so simple, you can easily port them to AB and do some serious
optimizations to prove or disprove to yourself. (NOTE: they are
futures trading systems, might not for stocks.)
Thomas
--- In amibroker@xxxx, "Rick Parsons" <RickParsons@xxxx> wrote:
> >>long enough to earn your EXPECTANCY returns<<
>
> I am in the middle of Tharp's book, Trade Your Way to Financial
Freedom, and just finished the chapter 6 on Expectancy. The idea of
expectancy is an excellent way to pick the "best" system.
>
> However if one wants to calculate Expectancy the way Tharp does, it
appears to be VERY cumbersome when one has to group trades into
profit ranges then calculate each group separately to get the overall
expectancy number. (See pages 149 - 158)
>
> So I would imagine if one wants all the MM and Dynamic Portfolio
features, Amibroker should first calculate expectancy on each system
to make sure we have a positive expectancy system.
>
> Comments?
>
> Rick
> -----Original Message-----
> From: tchan95014 [mailto:tchan95014@x...]
> Sent: Wednesday, October 30, 2002 5:02 PM
> To: amibroker@xxxx
> Subject: [amibroker] Re: Dynamic Money Management
>
>
> I completely agree with the quoted message.
>
> TR is flexible enough to allow for almost any (risk) ideas you
can
> think of to do the position sizing: newrisk, volatility, margin,
> market activities, group risk, group heat, portfolio risk /
heat...
> and yes, the portfolio level position sizing is the best feature.
You
> can even combine different systems each with different portfolio.
It
> is a DOS software but it is powerful.
>
> Money management (or rather more accurately, position sizing or
bet
> sizing) is an area not very often discussed and not often
appreciated.
>
> I have posted some time ago, you can get some very detailed info
from
> TradingRecipes.com as well as traderclub.com by searching
on "Mark
> Johnson"
>
> This gentleman was kind enough to post many of the ACTUAL works
he
> put in using TR.
> 1) He offered right there a very simple long term trend
following
> system that works for FREE.
> 2) He tested it using 1-contract with the worst possible fills
you
> can get
> 3) He test it using regular 1-contract test
> 4) He then tested it using TR with position sizing with a
> portfolio of more than 10 or 15 futures contracts (You even get
the
> TR code for FREE too, it is so easy you can learn by reading it
and
> understand the logic behind it.)
> 5) He tested them over 10 or 20 years of history data.
>
> It is an eye opening experience you do not want to miss.
>
> He also listed his own trading results from actually following a
> vendor system for 3 or 4 years, most people would agree it was
> excellent results.
>
> Go to both sites mentioned above and read as much as you can. If
you
> are interested in this subject, I have not found a better place
for
> education. All others only talk (including Tharp, although I have
to
> admit his book is OK), but you see hard numbers here.
>
> While we are searching for a Holy grail system spending endless
time
> there, position sizing might offer a much easier path because it
> optimizes the profit while controls the risk of your choice, you
know
> you can live long enough to earn your EXPECTANCY returns.
>
> Wealth Lab is another software that claimed to have this
capability
> but again is never actually verified to be correct. (There was a
long
> debate, discussion and even tests on the trader club board about
this
> but was never actually confirmed whether it is working correctly.)
>
> TR will cost you > $2000 while Athena, last heard, will cost you
>
> $40000 (that is right!) They were originated from the same idea
and
> might even be from the same group of persons (NOT Tharp though)
>
> I think, AB even with its current capability is very close to be
able
> to do the portfolio level position sizing already. (with this
> AddToComposit() for now. Do not quote me, it just came out of my
> head.) I think Tomasz can do it in a very short time, the only
issue
> is to test it. It takes time to provide all the flexibility and
iron
> out all the bugs, it is a big challenge.
>
> With current AB structure,I think it has paved ways for much more
> flexibility than TR can ever provide. Monte Carlo, 2/3D surface
chart
> built in, any taker? ;-)
>
> Bob from TR has promised a window version for years, but nothing
has
> come out yet.
>
>
> Thomas
>
>
>
> --- In amibroker@xxxx, "Al Venosa" <avcinci@xxxx> wrote:
> > 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.
>
>
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