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Sebastian,
You wrote: "Allocating money by using volatility-based money
management rules, you'd have less money invested in the better-
performing asset class (small-caps) and more money invested in the
lesser-performing asset class (large caps)."
1) I believe that is the goal -- less money invested in riskier
small-caps, and more money in stable large-caps.
2) Your comment assuming the risk fraction does not vary with asset
class or trade probablility. There are several dynamic money
management techniques where the bet size is varied... I'm trying to
test some of these now, marching through quicksand...
--- In equismetastock@xxxxxxxxxxxxxxx, sebastiandanconia
<no_reply@xxxx> wrote:
> Superfragalist and I agree on something, and that is that you should
> test this and see how it works.
>
> Volatility-based fixed-fractional position sizing can be a useful
> tool, but like any trading tool it has its strengths and weaknesses.
>
> Its strength is that it reduces equity swings by diversifying
> according to the volatility of the securities in the portfolio. More
> volatile stocks have less money committed to them and less volatile
> stocks get more money, giving you better diversification and a
> smoother equity curve.
>
> However, there's no free lunch and smaller equity swings come at the
> cost of lower performance. Small-cap stocks, for example, are more
> volatile than large-cap stocks, but small-caps outperform large-caps
> over time. Allocating money by using volatility-based money
> management rules, you'd have less money invested in the better-
> performing asset class (small-caps) and more money invested in the
> lesser-performing asset class (large caps). That would happen even
> if you were using EXACTLY the same entry/exit rules for them all.
>
> This may not be the best forum for discussions of "how" or "why"
> different techniques work as they do (and how they interact), but in
> good conscience I couldn't just let this slide. However much it
> takes, you really need to put yourself in a position where you can
> test ideas independently and test them hard.
>
> JMO, FWIW, and I yield my soap-box to the next person.:)
>
>
> Luck,
>
> Sebastian
>
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser"
> <andysmith_999@xxxx> wrote:
> > Super,
> >
> > I understand the volatility-based sizing, but have a question about
> > the fixed fractional risk number itself.
> >
> > Say you choose your risk per trade to be 2% of account equity. Do
> you
> > ever modulate that 2% (say to 1% or 3%) based on how your portfolio
> > equity curve is doing, or based on if you are in a winning streak or
> > losing streak? If so, can you share your experience?
> >
> > I find it odd that there is much published work about money
> mangement
> > when it comes to futures/comodities, but little related to
> stocks....
> >
> > As always, thanks much for your guidance.
> >
> >
> >
> > --- In equismetastock@xxxxxxxxxxxxxxx, superfragalist
> <no_reply@xxxx>
> > wrote:
> > > I have been accused of promoting Roy's newsletter. That
> accusation is
> > > alleged and the merit as yet undetermined. Without admitting or
> > > denying anything, if it sounds like I promote the newsletter, it's
> > > because it's such a good MS tool that I think every MS user
> should use
> > > it.
> > >
> > > In fact, Equis should give everyone who purchases MS a free one
> year
> > > subscription. (I'm sorry, I lost my head for a minute. I know
> that's
> > > just being too rational.)
> > >
> > > However, unlike Equis I don't ignore the users and what they need
> to
> > > be successful. So as a gift to everyone who subscribes to Roy's
> > > newsletter this month, I'm going to give you a terrific position
> > > sizing indicator that calculates the number of shares of a
> particular
> > > stock that you should buy based on your personal risk profile and
> the
> > > volatility of the stock.
> > >
> > > This is a powerful tool for position sizing, so don't ignore it.
> Test
> > > it out and see if it improves your returns. It's based on sound
> theory
> > > of money management.
> > >
> > > CapitalAccount:=Input("Size of Capital
> Account",5000,10000000,100000);
> > > RiskPercent:=Input("Account Risk Tolerance in
> > Decimals.",0.001,100,0.01);
> > > {This is the amount of your account balance you're willing to
> lose per
> > > trade-- 0.01 equals 1%.}
> > > VT:=Input("ATR Periods for Calculating Volatility.",1,100,10);
> > > Bars:=Input("Number of Bars for Smoothing ATR.",2,100,10);
> > > WhimpFactor:=Input("Personal Risk Profile-1 Cowboy to 7
> Whimp",1,7,3);
> > > {1 means you ride bulls and live hard, 7 means you're Mister
> > > Rogers--most people fall in between.}
> > > x:=Mov(ATR(VT),Bars,S);
> > > RiskPercent*CapitalAccount/(x*WhimpFactor)
> > >
> > > Plot this on the chart and read the shares to include in your
> > > portfolio at the current price.
> > >
> > > Yes, I know I'm giving it to you before you subscribe. I work off
> of
> > > the honor system, so I know that everyone who reads this will
> honor
> > > the deal and sign up. This one indicator alone is worth the
> price.
> > >
> > > www.metastocktips.co.nz
> > >
> > > I know who's being naughty and nice, I'm making a list and
> counting it
> > > twice. So look out, Christmas is coming. It's not a good time to
> be
> > > breaking the honor code. Okay!
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