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One way to sidestep the risk measurement problem is by allocating capital by
risk in the first place. So if you have a maximum of 1% of equity in each
position, protected by stops (using an ATR multiple, or something similar)
then you can limit your total heat to 20% by never having more than 20
positions.
As part of the trade selection explorations I run every night I include a
calculation of the number of shares for any target stock to give me 1% of
capital based on 4*ATR. Then when I put in the order I can just read off the
number of shares, rounded as appropriate. The only minor hassle is to input
the 1% of equity numbers before I run the exploration. As a result I run
into total capital limits (account buying power) long before I get to
portfolio heat problems. A different ATR multiple would give a different
result.
The equity curve is presumably the daily mark on your portfolio. I keep a
closed equity curve - but in Excel. But if you're going to track slippage,
commissions, and any decent portfolio stats, then a spreadsheet is the only
way to go unless you're going to get in to high end portfolio management
software.
If you want these kinds of numbers as output for backtesting, then TradeSim
is one way to go.
Andrew
-----Original Message-----
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of metastkuser
Sent: Thursday, June 16, 2005 5:30 PM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: [EquisMetaStock Group] Portfolio Risk & Equity Curve
Implementing this in Metastock is so far beyond me that I must confess, I
wouldn't even know what page of the MS manual to start with. However, it's
very important (to me) that I find a solution somehow...
1) Let's say I have all the symbols corresponding to my open positions, long
and short, in one folder. How do I get Metastock to show me the total
portfolio risk (i.e. heat) on an EOD basis? In other words, MS should go
through each open position, subtract my stop price (which is a unique
indicator in each symbol's layout) from the closing price and multiply by
the position size (also a unique indicator on each chart), and then do a
summation for all open positions.
2) How do I display the equity curve for the portfolio along with the risk
curve I described above?
I asked my brokers. Since they know what my stops are for each position, as
well as margin/cash balance, I thought they might be able to help. None of
them knew what an equity curve was.
(Please -- no replies with the words "excel spreadsheet" in them :-)
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