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Paul Altman <paulha@xxxxxxxxxxxxx> wrote:
> Does anyone have anything to say about how to position
>size for neural network trading?
>
> Yes, I admit I've salivated at the examples on Neuroshell's
>website, but as I prepare to put my children in debt with
>Neuroshell Trader, I'm pondering how you can know how much
>to trade on one of these "black box" stop&reverse
>systems, since you don't know what your maximum risk per
>trade is until you get there.
>
> Without knowing your exit price, or something about your
>exit price, you don't know your risk, so how can you know
>your trade size? Sure, you could add a trailing stop, but
>is there some more free-form, self-adjusting way
>of thinking about this, that lets the net dictate the
>trades while position-sizing according to risk?
One general-purpose method that often gives decent results
is the two-part strategy (1) Make betsize inversely proportional
to market volatility; (2) Run historical simulations (computer
backtests) of your entry-and-exit method using betsize (1)
and study worst-losing-trade, average-losing-trade,
max-adverse-excursion, and so forth. Adjust the proportionality
constant of betsize until the historical backtest resultant
equity curve meets YOUR personal needs for risk, drawdown,
growth, comfort, machismo, safety, and compound annual returns.
If you're trading multiple markets simultaneously, the
code for Trading Recipes goes like this:
'Resources
SYSTEM = 2.0 * POINTVALUE * ATR[20]
'Trade Entry\Exit Logic
NEWCONTRACTS = (0.025 * EQUITY) / SYSTEM
"Volatility" is approximated by the N-day Average True Range
(I happened to type N=20, you can experiment). It's converted
from "points in the market" to "dollars" by multiplying by
POINTVALUE. The betsize is inversely proportional to
volatility (since ATR goes into the denominator of
NEWCONTRACTS). Proportionality constant needs to be
jiggered to fit YOUR risk/reward/bragging/fear profile.
If you're only trading one market, then TradeStation
can do the calculations. {I myself trade Natural Gas
and Five Year TNotes and Canadian Dollars and more than
a dozen other commodity markets, so the TradeStation
approach isn't an option for me.}
--
Mark Johnson Silicon Valley, California mark@xxxxxxxxxxxx
"... The world will little note, nor long remember, what we
say here..." -Abraham Lincoln, "The Gettysburg Address"
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