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Hello Al,
You stated:
"the lower the volatility, the lower the risk
and therefore, the smaller the positionsize for that stock. "
Is this a correct assumption ? ...Would you want
a larger positionsize on a less risk position , and a smaller position on a more
volatile one ?
Anthony
----- Original Message -----
Sent: Saturday, December 11, 2004 7:53
AM
Subject: Re: [amibroker] PositionSize /
Capital
Ed,
I, too, have confirmed
many times with backtesting what you report, viz,, that positionsize = -x
gives better performance results than using volatility-based MM
positionsizing. The non-MM code I've used in the past is:
posqty =
Optimize("posqty",5,2,10,1); // no. of stocks active at any given
time
PositionSize = -100/posqty; //equal equity model
I think I know
what the problem is, but I have not as yet figured out how to solve the
problem with AFL. If you use the MM-based positionsize statement as we have
discussed (equal volatility model), i.e., PositionSize = -1 * C/StopAmt, and examine the tradelist, you will likely discover that,
often, not all 5 stocks are active all the time. In other words, either you
have idle capital earning nothing or you have fewer active stocks than you
want. Why is this? Because some stocks, which might not be as volatilie as
others, use up more of your capital to initiate a position than a more
volatile stock. Consequently, your capital is used up before you have a chance
to enter into your 4th or 5th stock. Instead of having 5 open positions, you
might only have 3 because of this. Checking positionsize shrinking doesn't
help because you'll discover you might have tiny positions in your 5th stock.
The fewer stocks you have, the less diversified you are, and therefore the
more risky your portfolio. The more risk, the higher the DDs. This problem
cannot happen with the equal equity model since all positions are equal in
size, by definition.
One possible way around this might be to increase
your margin so that equity is expanded enough to allow full funding of all
positions. But, again, this also increases your risk. Another way might be
dynamically setting your risk to fit the volatility of each stock individually
(the lower the volatility, the lower the risk and therefore, the smaller the
positionsize for that stock). However, this changes your model so that you no
longer have equal volatility/equal risk (getting closer to the equal equity
model). So, the problem remains unsolved for the moment. I have not had time
to devote to cracking this problem yet, but some day I hope to do this. If you
have any ideas, I'm all ears.
Al Venosa
ed nl wrote:
Thanks for your effort Al. It is very
clear,
In one of my earlier posts I posted
// money
management block
stopLoss = Ref(bbb*ATR(20),-1);
// trade
risk
tr = IIf(Buy,(stopLoss / BuyPrice),stopLoss / (ShortPrice +
stopLoss));
// renormalisation coefficient
rc = 0.02 / tr;
//
positionsize
PositionSize = rc *
-100
it actually gives the same result as
your:
PositionSize = -2.0 *
IIf(Buy,BuyPrice,ShortPrice) /
stopLoss
except for short positions. Exact the same it
would be if I use: tr = IIf(Buy,(stopLoss / BuyPrice),stopLoss /
(ShortPrice));
Unfortunatelly I do not get better results this
way. Using just a simple PositionSize = -10 still gives somewhat better
results.
rgds, Ed
-----
Original Message -----
Sent:
Saturday, December 11, 2004 4:19 AM
Subject:
Re: [amibroker] PositionSize / Capital
ed nl wrote:
Al,
but how do you implement the risk factor
now?
ed Ed:
Let us suppose you have established your
risk as 1% (i.e., the maximum you are willing to lose on a trade). Let us
also suppose your initial equity is $100,000. So, if the stock you buy (or
short) goes down by the amount based on your system, you lose only $1000,
keeping you in the game. Now, let us say you defined your volatillty-based stop in terms of 2*ATR(20), which you incorrectly
assigned to the variable TrailStopAmount. I say 'incorrectly' because the
TrailStop in AB was designed to mimic the Chandelier exit, which is
basically a profit target type of stock (it hangs down like a chandelier
from the highest high since the trade was initiated, if long). I don't
think you want the TrailStop to be your money management stop. Rather, the
MM stop is the max stoploss, defined as:
StopAmt =
2*ATR(20);
ApplyStop(0,2,StopAmt,1);
So, if your stock declines
by 2*ATR(20) from your entry, you exit with a 1% loss. Let's take an
example. Stock A is selling for $40/share. It's ATR(20) is $1/shr or 2.5%
of 40. Your stop amount is 2*ATR(20), which is $2/shr. How much stock do
you buy? You simply divide your risk, $1000, by 2*1, which is 500 shares.
This amounts to an investment of $40/shr * 500 shrs or $20,000. All of
this can be coded in one simple line of AFL plus the 2 lines above
defining the MM stoploss:
PositionSize = -1 *
BuyPrice/StopAmt;
where -1 is 1% of current equity (0.01 * 100,000
or $1000), BuyPrice = $40/shr, and StopAmt is 2. Keep in mind that a
negative sign means 1% of CURRENT equity, which means compounded
equity, not just a constant initial equity of $100,000. If you carry
through the above math with your renormalization coefficient notation, you
wind up with the exact same answer.
One more thing. When you place
your order, assuming you are trading with EOD data, you do not know what
the buyprice is until you buy the stock, which is the next day. So, what
most traders do is base their positionsize on the closing price of the
night before the entry. Therefore, to place an order in the evening to be
filled in the morning at the open, your positionsize statement would
actually be:
PositionSize = -1 * C/StopAmt;
where C is the
closing price on the night before you buy. So, if you use the code
SetTradeDelays(1,1,1,1), then the above formula is OK. However, if you use
SetTradeDelays(0,0,0,0), then you have to ref the C back a day.
This is probably more information than you were asking about, but
I hope it helps.
Cheers,
Al Venosa
Check
AmiBroker web page at:
http://www.amibroker.com/
Check
group FAQ at: http://groups.yahoo.com/group/amibroker/files/groupfaq.html
Check AmiBroker web page at:
http://www.amibroker.com/
Check group FAQ at: http://groups.yahoo.com/group/amibroker/files/groupfaq.html
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