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I'd be the last to say I haven't been confused by this but I still
think it makes sense.
Citing my earlier example, if I have $1000 in risk capital, I could
only afford one share of Berkshire Hathaway ($1000/ATR = 1). But if
my $1.00 stock has an ATR of .10, I could buy 10,000 shares
($1000/.10). Although I've tied up $85,000 in one case (approx. cost
of one share of Brk.a) but only $10,000 in the other, my risk is the
same ($1000).
In both cases only my risk and the ATR entered into the position
sizing, not the price of the stock.
Make sense?
Dan
(A variant of this message may appear twice. Thought I sent it once
but it aparently vanished).
--- In amibroker@xxxxxxxxxxxxxxx, "Pal Anand" <palsanand@xxxx> wrote:
>
> well, you said:
>
> "Although the position sizing being independent of the price of
> the stock seems counterintuitive, I just reread the chapter in Van
> Tharp's book on this ("Trade Your Way to Financial Freedom") and
> I think that's the way it's supposed to be."
>
> I think you should re-think about your statement. Just trying to
> help here :)
>
> ATR - An indicator that measures a security's volatility, but gives
> no indication of price direction or duration. If you are talking
> about any other measures of volatility in this discussion, it is
out
> of context.
>
> rgds, Pal
> --- In amibroker@xxxxxxxxxxxxxxx, "danielwardadams"
> <danielwardadams@xxxx> wrote:
> >
> > I think the (communication) problem is in equating ATR with
> > volatility. In actuality, I think volatility has to be shown as
> some
> > function of price. The volatility measure I used for
PositionScore
> in
> > the system I mentioned was C/ATR(5). Graham spoke of volatility
> (not
> > ATR) when he said "Higher price = lower volatility".
> >
> > Obviously Berkshire Hathaway has a large ATR (> $1000) while a $1
> > stock has a small one (pennies). But the low priced one can move
a
> > lot faster :-}.
> >
> > Dan
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "Pal Anand" <palsanand@xxxx>
> wrote:
> > >
> > > Really? I just calculated ATR(14) for stock (Guess?, Inc. on
> NYSE)
> > > GES. It is a $12.15 stock and the value was 0.608 and for AMZN
> > > (Amazon.com Inc., on Nasdaq) which is a $40.13 stock and the
> value
> > > was 1.317, more than double.
> > >
> > > Because of this, ATR readings can be difficult to compare
across
> a
> > > range of securities. Even for a single security, large price
> > > movements, such as a decline from $50 to $10, can make long-
term
> > ATR
> > > comparisons problematical.
> > >
> > > Just a refresher:
> > >
> > > Wilder started with a concept called True Range (TR) which is
> > defined
> > > as the greatest of the following:
> > >
> > > The current high less the current low.
> > > The absolute value of: current high less the previous close.
> > > The absolute value of: current low less the previous close.
> > >
> > > If the current high/low range is large, chances are it will be
> used
> > > as the TR. If the current high/low range is small, it is likely
> > that
> > > one of the other two methods would be used to calculate the TR.
> The
> > > last two possibilities usually arise when the previous close is
> > > greater than the current high (signaling a potential gap down
> > and/or
> > > limit move) or the previous close is lower than the current low
> > > (signaling a potential gap up and/or limit move). To ensure
> > positive
> > > values, absolute values are to be applied to differences.
> > >
> > > rgds, Pal
> > > --- In amibroker@xxxxxxxxxxxxxxx, "Graham" <gkavanagh@xxxx>
wrote:
> > > > It is my experience that volatility is normally inverse to
price
> > > > Higher price = lower volatility
> > > >
> > > > Cheers,
> > > > Graham
> > > > http://e-wire.net.au/~eb_kavan/
> > > >
> > > > -----Original Message-----
> > > > From: Pal Anand [mailto:palsanand@x...]
> > > > Sent: Monday, December 13, 2004 2:45 PM
> > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > Subject: [amibroker] Re: PositionSize / Capital
> > > >
> > > >
> > > >
> > > > ATR shows volatility in absolute terms (cannot predict
> direction
> > or
> > > > duration, only activity levels), so, lower price stocks will
> have
> > > > lower ATR levels than higher price stocks. A $10 stock would
> > have
> > > a
> > > > much lower ATR value than a $50 stock, hence, one would end
up
> > > buying
> > > > more shares of the $10 stock than the $50 stock.
> > > >
> > > > rgds, Pal
> > > > --- In amibroker@xxxxxxxxxxxxxxx, "danielwardadams"
> > > > <danielwardadams@xxxx> wrote:
> > > > >
> > > > > I was gone most of the day so didn't have a chance to keep
up
> > > with
> > > > > the posts.
> > > > >
> > > > > I agree that the results are the opposite of what one would
> > > expect.
> > > > I
> > > > > think in the cases you cite, the formulas should be
> > > > 100,000*Risk/ATR.
> > > > > So if your risk tolerance is 2% and the ATR is 2, the
> position
> > > size
> > > > =
> > > > > 100,000*.02/2 = 2000/2 = 1000 where the 1000 is shares of
> stock
> > > and
> > > > > is independent of the price of the stock, i.e., you can buy
> > 1000
> > > > > shares of ANY priced stock that has an ATR of 2 and your
risk
> > > would
> > > > > be the same. In the case of the $50 stock, your position
> equity
> > > > would
> > > > > be $50*1000 = $50,000 when ATR=2. Similarly, you could buy
> > > > > twice (not half) as much of the stock when ATR=1.
> > > > >
> > > > > Although the position sizing being independent of the price
> of
> > > the
> > > > > stock seems counterintuitive, I just reread the chapter in
> Van
> > > > > Tharp's book on this ("Trade Your Way to Financial
Freedom")
> > and
> > > I
> > > > > think that's the way it's supposed to be.
> > > > >
> > > > > I'm not sure what this means for our 20% maximum position
> > equity
> > > > > allocation (to achieve diversification).
> > > > >
> > > > > Dan
> > > > >
> > > > >
> > > > > --- In amibroker@xxxxxxxxxxxxxxx, Al Venosa <advenosa@xxxx>
> > wrote:
> > > > > > Ed:
> > > > > >
> > > > > > Your formula doesn't make much sense to me. The term
> > > stoploss/ref
> > > > > (C,-1)
> > > > > > is simply the volatility of the stock, expressed as a
> > fraction
> > > of
> > > > > the
> > > > > > price, times a multiplier. Thus, for a $50 stock whose
ATR
> > is,
> > > > say,
> > > > > 2
> > > > > > (highly volatile), and if you are using a multiplier of 2
> > with
> > > an
> > > > > equity
> > > > > > of $100 K, then your positionsize statement specifies
that
> > the
> > > > > position
> > > > > > size of the trade will be only $8,000 (100,000 * 4/50).
For
> a
> > > > less
> > > > > > volatile stock (one whose ATR is only 1), then your
> > > positionsize
> > > > > would
> > > > > > be only $4,000. So, you are allocating less money for
less
> > > > volatile
> > > > > > stocks and more money for more volatile stocks, and the
> > amount
> > > > > allocated
> > > > > > in each case is tiny relative to your equity. This is the
> > > > opposite
> > > > > of
> > > > > > what volatility-based trading is all about. Did you leave
> > > > something
> > > > > out?
> > > > > >
> > > > > > Al Venosa
> > > > > >
> > > > > > ed nl wrote:
> > > > > >
> > > > > > > well I just mentioned this because the range is rather
> > > narrow.
> > > > > When
> > > > > > > testing this MM stuff on my system I noticed that it
> > behaved
> > > > very
> > > > > poor
> > > > > > > especially between 1998 and 2001. This is exactly the
> > period
> > > > the
> > > > > > > markets were very volatile. SInce volatility reduces
the
> > > > position
> > > > > > > size my system hardly invested any money.
> > > > > > >
> > > > > > > I tried giving risky trades more weight using (not sure
> if
> > > this
> > > > > is
> > > > > > > correct but it does approximately what I intended):
> > > > > > >
> > > > > > > *PositionSize* = -100 * (stopLoss / Ref(*C*,-1));
> > > > > > > this as I expected gives a better result than just
using
> a
> > > > > constant
> > > > > > > percentage over the last 3 year and also better than
the
> > > > correct
> > > > > MM
> > > > > > > approach. Between 1998 and 2001 however it performs
> worse,
> > > > > suffering
> > > > > > > when the market goes crazy.
> > > > > > >
> > > > > > > rgds, Ed
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > > ----- Original Message -----
> > > > > > > *From:* danielwardadams
<mailto:danielwardadams@x...>
> > > > > > > *To:* amibroker@xxxxxxxxxxxxxxx
> > > > > <mailto:amibroker@xxxxxxxxxxxxxxx>
> > > > > > > *Sent:* Sunday, December 12, 2004 4:06 PM
> > > > > > > *Subject:* [amibroker] Re: PositionSize / Capital
> > > > > > >
> > > > > > >
> > > > > > > I love it. This also helps avoid the tiny positions
> > > > somebody
> > > > > (Al?)
> > > > > > > mentioned yesterday (and I've experienced also).
But
> > why
> > > do
> > > > > you say
> > > > > > > it will usually probably use the 10 or 20% sized
> > > positions?
> > > > > Shouldn't
> > > > > > > that mean you're setting your risk parameter
> > > > unrealistically
> > > > > low?
> > > > > > >
> > > > > > > --- In amibroker@xxxxxxxxxxxxxxx
> > > > > > > <mailto:amibroker@xxxxxxxxxxxxxxx>, "ed nl"
> <ed2000nl@x
> > > > > > > <mailto:ed2000nl@x>...> wrote:
> > > > > > > > This way you can use a range: Maximum 20% minimum
> 10%
> > > of
> > > > > equity:
> > > > > > > >
> > > > > > > > rsk = -2; // 2%
> > > > > > > > PositionSize = Min(-10,Max(-20,rsk * Ref(C,-1) /
> > > > stopLoss));
> > > > > > > >
> > > > > > > > In practice it most of the time it probably
either
> > uses
> > > > 10%
> > > > > or 20%.
> > > > > > > >
> > > > > > > > Ed
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > ----- Original Message -----
> > > > > > > > From: danielwardadams
> > > > > > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > > > > > Sent: Sunday, December 12, 2004 3:40 PM
> > > > > > > > Subject: [amibroker] Re: PositionSize / Capital
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > 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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