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"trade restriction" meant that I had deliberately 'restricted'
eachand every trade PositionSize to $20K.
Oh, OK. I see.
Here's my take on position size. The positionsize statement calculates the size
of your investment based on the amount of risk you want to take. Hence, "-1"
refers to 1% of current equity times the buyprice divided by a multiple of ATR.
As your equity compounds, your position size will also increase because you are
always risking 1% of CURRENT equity. The position size statement goes hand in
hand with a max stoploss. So, when I say I'm risking 1%, that means I'm willing
to lose 1% of my current equity on a given trade. So, I set my stoploss based on
the ATR multiple defined in the positionsize statement. For example, take a
portfolio value of $100,000. Initially, on my first trade, I'm willing to lose
$1000 if I'm wrong. If the stock I buy is $50/share, and the ATR is, say, 3% of
the price or 1.5, then at 2ATR risk, I'm willing to see the stock decline to 47
before I'm out. My $1000 risk and the $3 loss determine my position size.
Dividing 1000 by 3 gives 333 shares to buy at $50. That's a $16,650 investment.
If the stock declines to 47, I lose my 1% or $1000. That's how volatility-based
position sizing works.
<FONT face="Times New Roman"
color=#0000ff>
TJ has said in the
past that, when you use positionsize statements in your trading system, you
cannot rely on any of the percent figures calculated in the backtest report
because they are based on your total equity. Since you are only investing a
fraction of your equity in any given trade, the % profit and % MDD figures are
all wrong (and I presume so is the RAR%). You are forced to use the dollar
amount figures rather than the % figures.
The huge decrease in RAR was a surprise to me too. That is what
Imeant by stating that I had not done any due diligence yet,
thereforedon't read too much into the post that I made. But thinking about
it,even though the profits increased by 30%+ the positionsize
changecould have increased the capital requirements significantly enough
forthe trading system that RAR could have been affected that much.
Idon't know exactly how TJ calculates RAR, but it would be logical
thatRAR is dependent upon capital requirements for the trading
systemmeasured against the profit gains, all in combination with the
holdingperiod (exposure of capital).
This goes hand in hand
with the statements above. <FONT
face="Times New Roman">
The comment about reversing positionsize computation was simply
aspeculation it would be interesting to measure trading systems in
twoways... 1) allocating greater positionsize to lower volatility
trades,and 2) allocating greater positionsize to higher volatility
trades.While it might not make sense, it might be an interesting study...
Younever know.
The positionsize
statement above automatically adjusts your investment based on volatility. In
the example above, if the ATR had been 1% of price rather than 3%, then your
stoploss would be $1 because 1% of 50 is 0.5 and you are risking 2ATR. In that
case, you would buy 1000/1 or 1000 shares at 50 or $50,000 rather than $16,650.
Your risk is the same ($1000), but your allocation is 3x higher. If the ATR were
5% of price or 2.5, then your risk is $5, your stoploss is 45, and your
positionsize is 1000/5 or 200 shares x $50 or $10,000. See how volatility
determines how much you buy but always risking a fixed 1%? High volatility
forces you to buy less, as it should. If your equity grows to $120,000, now your
1% risk is $1200 rather than $1000. Your risk is always fixed but on an absolute
basis, it grows or falls with equity. This is an antimartingale approach to bet
sizing.BTW... what software did you reply to the
post? I'd like to use colortext for some replies, but don't see a way to do
it with the YahooPost or Reply browser screen.
I just use Outlook
Express with HTML turned on to give color to text. You can do this also in Yahoo
mail.
<FONT face="Times New Roman"
color=#0000ff>
AV
<FONT
face="Times New Roman">Regards,Phsst--- In
amibroker@xxxxxxxxxxxxxxx, "Al Venosa" <advenosa@xxxx> wrote:> I
changed my pullback backtest to use your variable PositionSize = -1> *
BuyPrice/(2*ATR(15)).> > System went from $20k / trade restriction
to a range of $10k to $75k> per trade.> > I'm not sure I
follow you. What do you mean by "trade restriction"?Need more info. >
> Overall profit from the system increased about 30+%, but RAR
dropped> from 142% to just 6%+.> > That's a huge decrease
in RAR. I don't understand how you canincrease your overall profits yet have
such a huge decline in RAR.> > Have not done any meaningful due
diligence on results yet but was> astonished at how some numbers changed.
If the reported RAR number is> valid then it might mean that some trading
systems should reverse the> PositionSize calculation.> >
Again you've lost me. What do you mean by reversing the positionsize
statement? Can you be a little more specific? > > Appreciate your
idea, along with Chuck, Jayson, Graham & Freds comments.> >
Phsst> > > --- In amibroker@xxxxxxxxxxxxxxx, "Al Venosa"
<advenosa@xxxx> wrote:> > I Agree that Raw ATR numbers are of
little use. > > > > Jayson, I presume you mean 'of little
use' in relation to defining> efficient stocks. However, ATR can be very
useful in establishing> positionsize. For example, many traders use a
multiple of ATR to> establish not only a max stoploss point but also to
help calculate how> big of an investment to make in a trade. Thus,
risking 1% of current> equity in a trade, you can decide to take a
position using the> formula: PositionSize = -1 * BuyPrice/(2*ATR(15)).
Here, raw ATR is> very useful because if you happen to buy during a
highly volatile> time, your position size is lower because the 2*ATR is
in the> denominator. Conversely, if the volatility is low at the time of
the> buy, your position size is higher. This is a very effective
position> sizing strategy. > > > > Al V.>
> > > Yahoo! Groups
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> >
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