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[EquisMetaStock Group] Position size based on volatility



PureBytes Links

Trading Reference Links

Here's a series of money management articles that will explain a
variety of techniques for position sizing, etc. 

http://members.aon.at/tips/moneyMan1.htm

If some of you want to learn about money management, read these and
then look at the code I posted. 

Others may prefer to forget the education and just post their opinions.






--- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser"
<andysmith_999@xxxx> wrote:
> 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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