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I don't assume the heat is constant - but I have tested thousands of
portfolios using this system (well, actually a family of systems, but the
same for these purposes) with Trade Sim, and always found total capital was
more of a constraint than portfolio heat (I'm using S&P 500 stocks, so a few
positions of low-vol stocks can use up a lot of broker-calculated capital
without impacting portfolio heat much). In my case I'm helped by the fact
that I'm also using a time stop, so I'm out by day 9 or before. Over that
period of time it would be a very odd set of circumstances that would make a
meaningful rise in portfolio heat from inception, given that I also have a
variety of faster acting stops, so hitting an initial stop level is a very
rare event - usually only if there was a very large gap move. I'm also
entering after increases in momentum, so ATR has already increased, and its
a long/short system, so you're right, it may not be appropriate to
extrapolate to other setups. If I was long or short only, using leverage
and a lower ATR multiple I'd want to keep a much closer track on portfolio
heat than I do - but I would recommend portfolio level backtesting - it can
help a lot with these kinds of issues in identifying whether you are likely
to have a problem or not.
Re excel, I'm only entering closed trades and tracking closed trade equity,
so the data input isn't too onerous. I'm not doing any updates with live or
end-of-day pricing, although I could see how it could be done with a decent
API setup.
Let us know if you find a good solution - I don't need it now, but I may in
the future.
The other item we're not talking about is correlation between the different
securities in the portfolio, which again may be most easily controlled by
rules at the time of entry (a la Turtles) than regular marks - and doesn't
really get covered in the heat calculation. I haven't gone there yet, but I
can see the possible need at some point.
Best
Andrew
-----Original Message-----
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of metastkuser
Sent: Friday, June 17, 2005 1:46 PM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: Re: [EquisMetaStock Group] Portfolio Risk & Equity Curve
Andrew,
I do allocate capital by risk (max risk of 1% of account per position,
position sizing based on a 3*ATR inital stop, max 20 positions). But the
total risk does not stay constant. The total risk varies day-to-day since
the intial stop is eventually replaced with a daily-updated trailing stop,
ATRs may go up or down,... all this whilst the position size stays the same.
Therefore the per-position risk bounces around day-to-day, as does the
portfolio risk. Why do you assume it stays constant?
For excel, do you have an API that links to your brokerage or do you enter
by hand?
--- In equismetastock@xxxxxxxxxxxxxxx, "Andrew Tomlinson"
<andrew_tomlinson@xxxx> wrote:
>
> 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 :-)
>
>
>
>
>
>
> Yahoo! Groups Links
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