|
PureBytes Links
Trading Reference Links
|
Marinus,
1. Position sizing is not about where you enter, or in how many positions.
It is a portfolio risk measurement, where the size of your position is
determined by targeting either annualised return or risk to your portfolio
over the life of the backtest.
2. Yes, there is an optimal level to enter a position. It is 1 tick above
the low on a buy and 1 tick below the high on a sell. Unfortunately, none
of us know where that is in advance, and even if you designed a model that
could enter at those points, it is no guarantee it will work into the
future. In fact you can pretty much guarantee that the market will change
its characteristics enough to result in your model deteriorating somewhat.
Therefore, almost without exception, every successful trader of large
magnitude will enter at multiple points. This is not only a volume issue
(which isn't relevant to a small trader), but also recognition of the fact
that the future won't repeat the past identically, and if the optimal entry
point shifts back and forth over time, then by entering via multiple
positions, it generally helps keep you somewhat within the vicinity of the
optimal point. Entering via multiple positions has absolutely no relevance
here to multiple models or averaging into losses, nor taking enormous risks.
This is because the trader/investor sees the entries as one trade, where
risk is defined beforehand and determined to be within portfolio constraints
on the total position.
Adrian
-----Original Message-----
From: Loewensteijn [mailto:Loewensteijn@xxxxxxxxxxxx]
Sent: Tuesday, 31 July 2007 11:15 PM
To: omega-list@xxxxxxxxxx
Subject: position sizing
Experience (and experience comes from making mistakes, LOL) has taught me
that position sizing is a pretty dangerous thing to do. I have backtested
and backtested this and found that it inevitably leads to more severe
drawdowns on the intraday data.
You can look at it in another way: there is always an optimum place to enter
and exit the markets. When you know these optimum places why then start
entering at another place? Basically when you position size you are putting
on another (and totally differnt) trade with a less favourable win / lose
ratio. Far better to create another strategy that has little correlation
with the initial startegy that you use: e.g. combine a trend following
system with a counter trend system.
If you feel that position sizing is for you then my reply is: then you have
not much of a clue where to enter or exit the market and you better start
focussing on that.
Marinus
3:50 PM
3:50 PM
|