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I'd like to know the answer to your question, too. Here is how I would guess
AB does it. It determines your TOTAL CURRENT equity at any given time. You
said that one of your stocks exited with a $3K profit after a few days, but
you didn't say what the other 9 stocks did. Suppose they grew to a $20 K
profit collectively. Thus, your total current equity is now $123 K (the $3K
profit from your exited position plus the $20 K open profit from the other 9
stocks plus the original $100 K invested). So, according to your
positionsize statement, the new investment would be 10% of $123 K or $12.3
K. So, you would buy $12.3 K of your new stock rather than $13 K, leaving
you with $700 uninvested cash. Does this make sense? I don't know if it is
correct, however.
Al Venosa
----- Original Message -----
From: <chuck_rademacher@xxxxxxxxxx>
To: <amibroker@xxxxxxxxxxxxxxx>
Sent: Friday, January 16, 2004 11:40 AM
Subject: [amibroker] Potential problem with Portfolio Backtester?
> I'm certainly not saying that there is a bug in the backtester. I just
wondered what other users think of what I see happening in my research. In
fact, after typing everything that follows, I've come to the conclusion that
the problem is in my own AFL. However, I believe that my coding is exactly
or at least similar to what everyone else is doing.
>
> I'll attempt to describe the situation:
>
> 1. I'm using the "normal" portfolio backtesting mode with market timing.
My systems will typically lay on some number of positions when the "market"
turns up and quit all of those positions when the market turns down. The
systems do have 50% loss stops (that are seldom hit) and profit stops that
are frequently hit.
>
> 2. Assume we are flat today.
>
> 3. We download our data, run our backtest and place our orders for
tomorrow's open.
>
> 4. Assume that we have $100,000 in our account and we have used
PositionScore to rank our 50 or so buy signals and that we are going to have
a maximum of ten positions.
>
> 5. We will have ten buy orders, each for about $10,000.
>
> 6. Let's say that after a few days, one of our positions hits our profit
objective and we exit with a $3,000 profit.
>
> 7. This leaves us with $13,000 to invest tomorrow.
>
> 8. Assuming that the market is still in an up-trend, AB (our AFL) is
going to find a new stock for us to buy. I believe that it is going to
divide our available funds ($13,000) by ten and that it will invest only
$1,300 in the stock that is replacing the stock we quit at our profit stop.
Why wouldn't it? After all, it's my own AFL that says something like:
>
> PositionSize = -100/posqty;
> or
> PositionSize = -10;
>
> The questions I have are:
>
> 1. Do you agree that this is what is happening?
>
> 2. Does this explain why we are not able to achieve the exposure
percentages that we expect?
>
> 3. Would you like the buy order be for $1,300, $10,000 or $13,000?
>
> 4. Have you solved this problem yourself with some fancy AFL? I'm
thinking that I may, for instance, be able to calculate position size at the
beginning of a market cycle and use it throughout that cycle. In other
words, I would determine that for the next cycle, all positions will be
$10,000. Profits would just be set aside for the next cycle.
>
> I look forward to hearing from those of you who are interested in this
subject.
>
>
> Send BUG REPORTS to bugs@xxxxxxxxxxxxx
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