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Dan:
I think, due to the lack of response from the forum, we won't be
getting much more response. I appreciate your diligence in trying to
solve this problem, something I've been working on for over 2 years
without much success. I really don't think you want to restrict your
stock-picking to stocks that approach your maximum positionsize since
you may be picking stocks that don't meet your other selection criteria
for your system or missing stocks that do. One thing you COULD do is to
filter your entire stock universe based on ATR/C to a critical range of
no less than, say, 1.5% and no greater than maybe 6 or 7%. Chuck LeBeau
does this, reasoning that stocks with really high volatilities are much
too volatile to be traded rationally, and stocks with volatilities too
low simply won't move enough to justify taking such huge positions in
them. Or, you could create a watchlist containing issues that,
according to Tharp, are "efficient" stocks, i.e., those that move up or
down without too much of a change in volatility. Lots of ideas to test,
just not enough hours in the day. Keep at it, and don't give up. We'll
crack this nut somehow even if it takes 2 more years!!
Al Venosa
danielwardadams wrote:
Al,
I give up. I've tried every combination of PositionSize and
PositionScore and MaxOpenPositions and number of positions and
everything else I can think of and I can't get volatility based
position sizing with "forced" diversification to work the way I (we)
think it should.
Intuitively, I think the problem is pretty simple. You want to do
volatility based position sizing but you want to force some minimum
number of positions (say 5) and you don't want any position to exceed
some fixed percentage of your total equity (say 20%).
So if anybody else has this figured out, I'd really appreciate
hearing how you did it. I have a gut feeling it's simple but I sure
can't figure it out.
I think one problem arises since volatility based sizing is
independent of share price (according to my understanding of it), if
NumShares*BuyPrice doesn't fit within your maximum position size
constraint, it simply can't be bought. Another problem is that even
if they meet your maximum constraints, the position sizes can be all
over the map, including pretty small for high volatility stocks. So
you can either end up with a lot of positions or a lot of idle cash.
So I think a goal of a volatility based systems should be to
pick "ideal" stocks where the NumShares*BuyPrice is as close to your
maximum position size as possible. Presumbably this could be factored
into PositionScore but I'm not sure how.
All of this is complicated by the fact I don't know how to access
total portfolio equity during a backtest which I think is necessary
to make some of these decisions possible.
Again, if anybody has this solved, let me know how your did it
(please).
Dan
Check AmiBroker web page at:
http://www.amibroker.com/
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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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