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RE: "> About the minimum number of trades I don't know. In my system
that would be impossible because sometimes good entries just dry up
and I can't find even find 5."
I have this problem too. I used to fight it and always tried to come
up with systems that kept me fully invested. Now, however, I just
assume my system is telling me the right thing about the market (/my
universe of stocks) and that portion of my portfolio remains in cash.
I didn't see TJ's post about setting max positions to more than you
really need/want. In my test, I said 10 max positions and 20% equity.
It's just the volatility based position sizing that didn't seem to be
working.
I'll look for TJ's post(s) on this.
Dan
--- In amibroker@xxxxxxxxxxxxxxx, "danielwardadams"
<danielwardadams@xxxx> wrote:
>
> Al & Ed,
> This is exactly where I ended up yesterday (hours after my post).
> When I tried it, though, I always ended up taking the 20% positions
> rather than those defined by my risk. Thinking it wasn't working, I
> gave up and went to bed.
>
> But since someone else thinks this should work, obviously I need to
> play with it some more.
>
> Dan
>
> --- In amibroker@xxxxxxxxxxxxxxx, "ed nl" <ed2000nl@xxxx> wrote:
> > Al,
> >
> > about the part: "Your suggestion to limit positionsize not to
> exceed any more than 20% of equity may be the solution since it
goes
> hand in hand with the philosophy of money management. That is, do
not
> allow any one position to exceed, say, 10 or 15 percent of your
> equity. The Turtles did that, and I think lots of traders do that,
> too. So, I see nothing wrong with that. Have you coded this in AFL"
> >
> > I think you can solve this using:
> >
> > rsk = -2; // 2%
> > PositionSize = Max(-20,rsk * Ref(C,-1) / stopLoss);
> >
> > now it will never use more than 20% of equity.
> >
> > About the minimum number of trades I don't know. In my system
that
> would be impossible because sometimes good entries just dry up and
I
> can't find even find 5.
> >
> > rgds, Ed
> >
> > ----- Original Message -----
> > From: Al Venosa
> > To: amibroker@xxxxxxxxxxxxxxx
> > Sent: Sunday, December 12, 2004 3:11 PM
> > Subject: Re: [amibroker] Re: PositionSize / Capital
> >
> >
> > Dan:
> >
> > Thanks for the ideas. You're not rambling; you're thinking, and
> this discussion is healthy. Good ideas may stem from the
discussion,
> so by all means, keep posting.
> >
> > I don't think you need a new built-in function called MinPos.
> Maybe TJ came up with a solution the other day by suggesting you
set
> the max open positions to some large value like 10 of 15, even
though
> you plan to take on no more than 5 at any time. So, if you don't
use
> up all your equity using volatility-based positionsizing, you might
> add on new positions with this approach. I haven't tested this idea
> yet, but I will. The problem occurs when the opposite happens,
> namely, all your equity is used up before you are able to add your
> 4th and 5th positions. Your suggestion to limit positionsize not to
> exceed any more than 20% of equity may be the solution since it
goes
> hand in hand with the philosophy of money management. That is, do
not
> allow any one position to exceed, say, 10 or 15 percent of your
> equity. The Turtles did that, and I think lots of traders do that,
> too. So, I see nothing wrong with that. Have you coded this in AFL?
> I'm like Yuki: good with concepts buy lousy with creative
> programming.
> >
> > Al Venosa
> >
> > danielwardadams wrote:
> >
> >
> > After thinking about this some more, I think all I've
described
> is
> > what could be accomplished with two more built-in variables.
> MinPos
> > could say you want no less than some minimum number of
> positions (5
> > in my example) and MaxPositionSize could say you want to
> allocate no
> > more than X% of capital to any one position (20% in my
example).
> >
> > Within these constraints, your actual position sizing methond
> could
> > be anything you want.
> >
> > I'm probably rambling .........
> >
> > Dan
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "danielwardadams"
> > <danielwardadams@xxxx> wrote:
> > >
> > > Al & Anthony,
> > > I've also seen the lower returns for volatility based
versus
> equal
> > > equity position sizing in the past and didn't know what to
do
> about
> > > it (assuming I wanted more positions for more
> diversification).
> > >
> > > I'm not sure how one would code it in .AFL, but would the
> following
> > > represent a reasonable compromise?
> > >
> > > (1) Start with an equal equity based model based on, say,
5
> > > positions (position size = -20). So each part of the pie
> equals 20%
> > > of total equity.
> > > (2) Determine actual position size within each piece of the
> pie
> > based
> > > on volatility based sizing. So, depending on your risk
> parameter,
> > one
> > > might use only 17% of one piece of the pie, 13% of another
> piece,
> > and
> > > 20%, 8%, and 11% of the other pieces.
> > > (3) Sum the used portions of the pie (in this case
> 17+13+20+8+11 =
> > > 69%) and see what you have left. 31% in case.
> > > (4) Allocate the remaining cash according to the equal
equity
> > model.
> > > This means you get one more 20% piece of pie and only have
> 11% cash
> > > remaining.
> > > (5) Apply the above using your ATR based position sizing
> > recursively
> > > until your cash is minimized. So if you only are able to
use
> 9% of
> > > the piece of pie left in (4) you take the 11% left from
that
> piece
> > > plus the 11% cash and you have 22% -- enough for another
> position.
> > So
> > > in this case you end up with 7 positions and only 2% left
in
> cash.
> > > So your cash is minimized and all your positions adhere to
> the ATR
> > > based position sizing.
> > >
> > > Like I say, I have no idea how to code it but intuitively
it
> makes
> > > sense to me.
> > >
> > > Thoughts/comments?
> > >
> > > Dan
> > >
> > > (And, yes, I'm sure I'm not the first person to think of it
> so my
> > > apologies to those who have gone before).
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "Anthony Faragasso"
> > <ajf1111@xxxx>
> > > wrote:
> > > > 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 -----
> > > > From: Al Venosa
> > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > 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 -----
> > > > From: Al Venosa
> > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > 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
> > > >
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