Al
I originally did the study for
finding stocks with low or high volatility compared to a norm. It progressed as
after plotting the C v ATR I noticed that there was a common pattern over a
wide range of stocks. I now have a defined measure of whether a stock is
trading with high or low volatility relative to its peers.
-----Original
Message-----
From: Al Venosa
[mailto:advenosa@xxxxxxxxxxxx]
Sent: Tuesday, December 14, 2004
8:22 AM
To: amibroker@xxxxxxxxxxxxxxx
Subject: Re: [amibroker] Re:
PositionSize / Capital
Hi,
Graham:
The empirical relationship you developed for ATR as a function of price is
interesting, but I doubt one can make a universal statement of its veracity
(and I'm not suggesting you are). ATR simply reflects the extent to which
traders and the rest of the market bid up the price value of a given security.
If the company suddenly comes out with an unexpectedly bad (or good) earnings
report, the price will become highly volatile for an undefined period of time.
This is due only to human (emotional) supply and demand forces and is
independent of price. A $10 stock that just announced a huge earnings report or
made a new discovery will shoot up very fast. As the price soars, so, too, does
its volatility. This could just as easily happen to a $100 stock
(remember the "irrational exuberance" of hi tech stocks in the late
90s?). So, I really don't think one can make a general statement that price
directly affects volatility. It is only a function of the excitement and/or
uncertainty that traders impart to the underlying price. Volatility and
uncertainty are synonyms. I like to plot the indicator 100*ATR(20)/C directly
on the price chart to get a quick picture of the volatility of a given stock at
any time. Typically, this figure may vary between 1.5 and 5% or more. Stocks
whose ATRs are much higher than 5% of the price are considered highly volatile,
regardless of the price. Just my 2 cents.
Al Venosa
Graham wrote:
Sorry I did not fully explain myself
Using ATR as a straight value is not overly
meaningful to me. I much prefer
to use ATR v Price as a measure of volatility. I
did a study a short while
ago into the relationship between ATR and price
and found that the actual
values can be plotted to provide a statistical
relationship of the type ATR
= n * C ^ m. Where m is a quadratic function of
period for ATR ( m = a*p^2 +
b*p + c ) p is period length, a,b,c,n are
constants
It is true the ATR increased with price but the
relative volatility ATR/C
decreased.
Just my thoughts
Cheers,
Graham
http://e-wire.net.au/~eb_kavan/
-----Original Message-----
From: Pal Anand [mailto:palsanand@xxxxxxxxx]
Sent: Tuesday, December 14, 2004 3:51 AM
To: amibroker@xxxxxxxxxxxxxxx
Subject: [amibroker] Re: PositionSize / Capital
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@xxxx>
> > > > *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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> > >
> > > >
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> > > >
> > > >
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