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[amibroker] Re: Compounding (size vs. positions)



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Chuck,

I don't disagree with your evaluation.  My comment was a very simple 
one relating to the effect of combining FIXED POSITION SIZE and FIXED 
NUMBER OF POSITIONS not the practicality of increasing bet size 
instead of the number of positions.  This probably all started way 
back when all of us were aware that AB had no capability to restrict 
numbers of positions so that one did not unintentionally exceed being 
more than 100% invested when trading portfolios ergo the initial 
necessity of PT or something like it.  There have been some who 
advocated the idea of testing based on the combo of the above.  My 
statement was and is that this method ?! at best hides both the good 
and bad aspects of individual systems even if ones intention is to 
invest in order to gain assets that one withdraws from the account 
for living expenses.  IMHO a 10% DD on account that is only 25% 
invested is highly misleading unless because of market conditions or 
available candidates one is only invested to that extent.

--- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher" 
<chuck_rademacher@x> wrote:
> Sometimes, I find it difficult to write everything that I am 
thinking on a
> complex subject.   I would like to take another shot at why I think 
it is
> better, for backtesting & evaluation purposes, to use profits to 
increase
> the number of positions rather than the size of each trade.
> 
> I feel that all we can do when developing a system is to try to 
pick stocks
> (or other instruments) that are going to move in a particular 
direction.
> IMO, it is only luck that a particular stock might go up 
geometrically
> instead of just a few percentage points.    Generally, I'm trying 
to develop
> systems that pick a stock to go up.   I've never been able to pick 
stocks
> that are going to go up the most.   This is largely due to the fact 
that I
> don't know that the whole market is going to get overheated over 
the next
> few days or weeks.   I didn't know that 9/11 was going to happen, 
but my
> systems sure made a lot of money on the short side.   Due to the 
disastrous
> effect of that event on so many people, I would hate to call 
this "luck",
> but it was as far as trading systems are concerned.
> 
> Based on hundreds of systems and thousands of trades, I know that 
on average
> I'm going to have 48% to 52% winners with an average net profit of 
4% to 6%.
> The last thing I want to see in my research is a system that 
doesn't trade
> very often and accidentally picks a winner that makes 2000%.    I 
definitely
> don't want this outlier to be exaggerated by coming along right 
after a big
> profit in another stock and using that profit to buy more of the 
second
> stock.   To me, this is "luck".   It certainly has nothing to do 
with the
> merits of the system.
> 
> Therefore,
> 
> When evaluating the merits of a system, I don't want to see any 
compounding
> of profits.
> 
> If I want to see how much money the system might have made for me, 
I would
> use the profits to increase the number of positions.
> 
> I cannot think of a single reason why I would want to see 
compounding of
> position size in my backtesting results.
> 
> But, that's just me.


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