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well, you said:
"Although the position sizing being independent of the price of
the stock seems counterintuitive, I just reread the chapter in Van
Tharp's book on this ("Trade Your Way to Financial Freedom") and
I think that's the way it's supposed to be."
I think you should re-think about your statement. Just trying to
help here :)
ATR - An indicator that measures a security's volatility, but gives
no indication of price direction or duration. If you are talking
about any other measures of volatility in this discussion, it is out
of context.
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "danielwardadams"
<danielwardadams@xxxx> wrote:
>
> I think the (communication) problem is in equating ATR with
> volatility. In actuality, I think volatility has to be shown as
some
> function of price. The volatility measure I used for PositionScore
in
> the system I mentioned was C/ATR(5). Graham spoke of volatility
(not
> ATR) when he said "Higher price = lower volatility".
>
> Obviously Berkshire Hathaway has a large ATR (> $1000) while a $1
> stock has a small one (pennies). But the low priced one can move a
> lot faster :-}.
>
> Dan
>
> --- In amibroker@xxxxxxxxxxxxxxx, "Pal Anand" <palsanand@xxxx>
wrote:
> >
> > Really? I just calculated ATR(14) for stock (Guess?, Inc. on
NYSE)
> > GES. It is a $12.15 stock and the value was 0.608 and for AMZN
> > (Amazon.com Inc., on Nasdaq) which is a $40.13 stock and the
value
> > was 1.317, more than double.
> >
> > Because of this, ATR readings can be difficult to compare across
a
> > range of securities. Even for a single security, large price
> > movements, such as a decline from $50 to $10, can make long-term
> ATR
> > comparisons problematical.
> >
> > Just a refresher:
> >
> > Wilder started with a concept called True Range (TR) which is
> defined
> > as the greatest of the following:
> >
> > The current high less the current low.
> > The absolute value of: current high less the previous close.
> > The absolute value of: current low less the previous close.
> >
> > If the current high/low range is large, chances are it will be
used
> > as the TR. If the current high/low range is small, it is likely
> that
> > one of the other two methods would be used to calculate the TR.
The
> > last two possibilities usually arise when the previous close is
> > greater than the current high (signaling a potential gap down
> and/or
> > limit move) or the previous close is lower than the current low
> > (signaling a potential gap up and/or limit move). To ensure
> positive
> > values, absolute values are to be applied to differences.
> >
> > rgds, Pal
> > --- In amibroker@xxxxxxxxxxxxxxx, "Graham" <gkavanagh@xxxx> wrote:
> > > It is my experience that volatility is normally inverse to price
> > > Higher price = lower volatility
> > >
> > > Cheers,
> > > Graham
> > > http://e-wire.net.au/~eb_kavan/
> > >
> > > -----Original Message-----
> > > From: Pal Anand [mailto:palsanand@x...]
> > > Sent: Monday, December 13, 2004 2:45 PM
> > > To: amibroker@xxxxxxxxxxxxxxx
> > > Subject: [amibroker] Re: PositionSize / Capital
> > >
> > >
> > >
> > > ATR shows volatility in absolute terms (cannot predict
direction
> or
> > > duration, only activity levels), so, lower price stocks will
have
> > > lower ATR levels than higher price stocks. A $10 stock would
> have
> > a
> > > much lower ATR value than a $50 stock, hence, one would end up
> > buying
> > > more shares of the $10 stock than the $50 stock.
> > >
> > > rgds, Pal
> > > --- In amibroker@xxxxxxxxxxxxxxx, "danielwardadams"
> > > <danielwardadams@xxxx> wrote:
> > > >
> > > > I was gone most of the day so didn't have a chance to keep up
> > with
> > > > the posts.
> > > >
> > > > I agree that the results are the opposite of what one would
> > expect.
> > > I
> > > > think in the cases you cite, the formulas should be
> > > 100,000*Risk/ATR.
> > > > So if your risk tolerance is 2% and the ATR is 2, the
position
> > size
> > > =
> > > > 100,000*.02/2 = 2000/2 = 1000 where the 1000 is shares of
stock
> > and
> > > > is independent of the price of the stock, i.e., you can buy
> 1000
> > > > shares of ANY priced stock that has an ATR of 2 and your risk
> > would
> > > > be the same. In the case of the $50 stock, your position
equity
> > > would
> > > > be $50*1000 = $50,000 when ATR=2. Similarly, you could buy
> > > > twice (not half) as much of the stock when ATR=1.
> > > >
> > > > Although the position sizing being independent of the price
of
> > the
> > > > stock seems counterintuitive, I just reread the chapter in
Van
> > > > Tharp's book on this ("Trade Your Way to Financial Freedom")
> and
> > I
> > > > think that's the way it's supposed to be.
> > > >
> > > > I'm not sure what this means for our 20% maximum position
> equity
> > > > allocation (to achieve diversification).
> > > >
> > > > Dan
> > > >
> > > >
> > > > --- In amibroker@xxxxxxxxxxxxxxx, Al Venosa <advenosa@xxxx>
> wrote:
> > > > > Ed:
> > > > >
> > > > > Your formula doesn't make much sense to me. The term
> > stoploss/ref
> > > > (C,-1)
> > > > > is simply the volatility of the stock, expressed as a
> fraction
> > of
> > > > the
> > > > > price, times a multiplier. Thus, for a $50 stock whose ATR
> is,
> > > say,
> > > > 2
> > > > > (highly volatile), and if you are using a multiplier of 2
> with
> > an
> > > > equity
> > > > > of $100 K, then your positionsize statement specifies that
> the
> > > > position
> > > > > size of the trade will be only $8,000 (100,000 * 4/50). For
a
> > > less
> > > > > volatile stock (one whose ATR is only 1), then your
> > positionsize
> > > > would
> > > > > be only $4,000. So, you are allocating less money for less
> > > volatile
> > > > > stocks and more money for more volatile stocks, and the
> amount
> > > > allocated
> > > > > in each case is tiny relative to your equity. This is the
> > > opposite
> > > > of
> > > > > what volatility-based trading is all about. Did you leave
> > > something
> > > > out?
> > > > >
> > > > > Al Venosa
> > > > >
> > > > > ed nl wrote:
> > > > >
> > > > > > well I just mentioned this because the range is rather
> > narrow.
> > > > When
> > > > > > testing this MM stuff on my system I noticed that it
> behaved
> > > very
> > > > poor
> > > > > > especially between 1998 and 2001. This is exactly the
> period
> > > the
> > > > > > markets were very volatile. SInce volatility reduces the
> > > position
> > > > > > size my system hardly invested any money.
> > > > > >
> > > > > > I tried giving risky trades more weight using (not sure
if
> > this
> > > > is
> > > > > > correct but it does approximately what I intended):
> > > > > >
> > > > > > *PositionSize* = -100 * (stopLoss / Ref(*C*,-1));
> > > > > > this as I expected gives a better result than just using
a
> > > > constant
> > > > > > percentage over the last 3 year and also better than the
> > > correct
> > > > MM
> > > > > > approach. Between 1998 and 2001 however it performs
worse,
> > > > suffering
> > > > > > when the market goes crazy.
> > > > > >
> > > > > > rgds, Ed
> > > > > >
> > > > > >
> > > > > >
> > > > > > ----- Original Message -----
> > > > > > *From:* danielwardadams <mailto:danielwardadams@x...>
> > > > > > *To:* amibroker@xxxxxxxxxxxxxxx
> > > > <mailto:amibroker@xxxxxxxxxxxxxxx>
> > > > > > *Sent:* Sunday, December 12, 2004 4:06 PM
> > > > > > *Subject:* [amibroker] Re: PositionSize / Capital
> > > > > >
> > > > > >
> > > > > > I love it. This also helps avoid the tiny positions
> > > somebody
> > > > (Al?)
> > > > > > mentioned yesterday (and I've experienced also). But
> why
> > do
> > > > you say
> > > > > > it will usually probably use the 10 or 20% sized
> > positions?
> > > > Shouldn't
> > > > > > that mean you're setting your risk parameter
> > > unrealistically
> > > > low?
> > > > > >
> > > > > > --- In amibroker@xxxxxxxxxxxxxxx
> > > > > > <mailto:amibroker@xxxxxxxxxxxxxxx>, "ed nl"
<ed2000nl@x
> > > > > > <mailto:ed2000nl@x>...> wrote:
> > > > > > > This way you can use a range: Maximum 20% minimum
10%
> > of
> > > > equity:
> > > > > > >
> > > > > > > rsk = -2; // 2%
> > > > > > > PositionSize = Min(-10,Max(-20,rsk * Ref(C,-1) /
> > > stopLoss));
> > > > > > >
> > > > > > > In practice it most of the time it probably either
> uses
> > > 10%
> > > > or 20%.
> > > > > > >
> > > > > > > Ed
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > > ----- Original Message -----
> > > > > > > From: danielwardadams
> > > > > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > > > > Sent: Sunday, December 12, 2004 3:40 PM
> > > > > > > Subject: [amibroker] Re: PositionSize / Capital
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > > Al & Ed,
> > > > > > > This is exactly where I ended up yesterday (hours
> > after
> > > > my post).
> > > > > > > When I tried it, though, I always ended up taking
> the
> > > 20%
> > > > > > positions
> > > > > > > rather than those defined by my risk. Thinking it
> > > wasn't
> > > > working,
> > > > > > I
> > > > > > > gave up and went to bed.
> > > > > > >
> > > > > > > But since someone else thinks this should work,
> > > obviously
> > > > I need
> > > > > > to
> > > > > > > play with it some more.
> > > > > > >
> > > > > > > Dan
> > > > > > >
> > > > > > > --- In amibroker@xxxxxxxxxxxxxxx, "ed nl"
> > > <ed2000nl@xxxx>
> > > > wrote:
> > > > > > > > Al,
> > > > > > > >
> > > > > > > > about the part: "Your suggestion to limit
> > > > positionsize not to
> > > > > > > exceed any more than 20% of equity may be the
> > solution
> > > > since it
> > > > > > goes
> > > > > > > hand in hand with the philosophy of money
> management.
> > > > That is, do
> > > > > > not
> > > > > > > allow any one position to exceed, say, 10 or 15
> > percent
> > > > of your
> > > > > > > equity. The Turtles did that, and I think lots of
> > > traders
> > > > do
> > > > > > that,
> > > > > > > too. So, I see nothing wrong with that. Have you
> > coded
> > > > this in
> > > > > > AFL"
> > > > > > > >
> > > > > > > > I think you can solve this using:
> > > > > > > >
> > > > > > > > rsk = -2; // 2%
> > > > > > > > PositionSize = Max(-20,rsk * Ref(C,-1) /
> stopLoss);
> > > > > > > >
> > > > > > > > now it will never use more than 20% of equity.
> > > > > > > >
> > > > > > > > About the minimum number of trades I don't
know.
> In
> > > my
> > > > system
> > > > > > that
> > > > > > > would be impossible because sometimes good
entries
> > just
> > > > dry up
> > > > > > and I
> > > > > > > can't find even find 5.
> > > > > > > >
> > > > > > > > rgds, Ed
> > > > > > > >
> > > > > > > > ----- Original Message -----
> > > > > > > > From: Al Venosa
> > > > > > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > > > > > Sent: Sunday, December 12, 2004 3:11 PM
> > > > > > > > Subject: Re: [amibroker] Re: PositionSize /
> > Capital
> > > > > > > >
> > > > > > > >
> > > > > > > > Dan:
> > > > > > > >
> > > > > > > > Thanks for the ideas. You're not rambling;
> you're
> > > > thinking,
> > > > > > and
> > > > > > > this discussion is healthy. Good ideas may stem
> from
> > the
> > > > > > discussion,
> > > > > > > so by all means, keep posting.
> > > > > > > >
> > > > > > > > I don't think you need a new built-in
function
> > > called
> > > > MinPos.
> > > > > > > Maybe TJ came up with a solution the other day by
> > > > suggesting you
> > > > > > set
> > > > > > > the max open positions to some large value like
10
> of
> > > 15,
> > > > even
> > > > > > though
> > > > > > > you plan to take on no more than 5 at any time.
So,
> > if
> > > > you don't
> > > > > > use
> > > > > > > up all your equity using volatility-based
> > > positionsizing,
> > > > you
> > > > > > might
> > > > > > > add on new positions with this approach. I
haven't
> > > tested
> > > > this
> > > > > > idea
> > > > > > > yet, but I will. The problem occurs when the
> opposite
> > > > happens,
> > > > > > > namely, all your equity is used up before you are
> > able
> > > to
> > > > add
> > > > > > your
> > > > > > > 4th and 5th positions. Your suggestion to limit
> > > > positionsize not
> > > > > > to
> > > > > > > exceed any more than 20% of equity may be the
> > solution
> > > > since it
> > > > > > goes
> > > > > > > hand in hand with the philosophy of money
> management.
> > > > That is, do
> > > > > > not
> > > > > > > allow any one position to exceed, say, 10 or 15
> > percent
> > > > of your
> > > > > > > equity. The Turtles did that, and I think lots of
> > > traders
> > > > do
> > > > > > that,
> > > > > > > too. So, I see nothing wrong with that. Have you
> > coded
> > > > this in
> > > > > > AFL?
> > > > > > > I'm like Yuki: good with concepts buy lousy with
> > > creative
> > > > > > > programming.
> > > > > > > >
> > > > > > > > Al Venosa
> > > > > > > >
> > > > > > > > danielwardadams wrote:
> > > > > > > >
> > > > > > > >
> > > > > > > > After thinking about this some more, I
think
> > all
> > > > I've
> > > > > > described
> > > > > > > is
> > > > > > > > what could be accomplished with two more
> built-
> > in
> > > > > > variables.
> > > > > > > MinPos
> > > > > > > > could say you want no less than some
minimum
> > > number
> > > > of
> > > > > > > positions (5
> > > > > > > > in my example) and MaxPositionSize could
say
> > you
> > > > want to
> > > > > > > allocate no
> > > > > > > > more than X% of capital to any one position
> > (20%
> > > in
> > > > my
> > > > > > example).
> > > > > > > >
> > > > > > > > Within these constraints, your actual
> position
> > > > sizing
> > > > > > methond
> > > > > > > could
> > > > > > > > be anything you want.
> > > > > > > >
> > > > > > > > I'm probably rambling .........
> > > > > > > >
> > > > > > > > Dan
> > > > > > > >
> > > > > > > > --- In
> > > amibroker@xxxxxxxxxxxxxxx, "danielwardadams"
> > > > > > > > <danielwardadams@xxxx> wrote:
> > > > > > > > >
> > > > > > > > > Al & Anthony,
> > > > > > > > > I've also seen the lower returns for
> > volatility
> > > > based
> > > > > > versus
> > > > > > > equal
> > > > > > > > > equity position sizing in the past and
> didn't
> > > > know what
> > > > > > to do
> > > > > > > about
> > > > > > > > > it (assuming I wanted more positions for
> more
> > > > > > > diversification).
> > > > > > > > >
> > > > > > > > > I'm not sure how one would code it
in .AFL,
> > but
> > > > would the
> > > > > > > following
> > > > > > > > > represent a reasonable compromise?
> > > > > > > > >
> > > > > > > > > (1) Start with an equal equity based
model
> > > based
> > > > on,
> > > > > > say, 5
> > > > > > > > > positions (position size = -20). So each
> part
> > > of
> > > > the pie
> > > > > > > equals 20%
> > > > > > > > > of total equity.
> > > > > > > > > (2) Determine actual position size within
> > each
> > > > piece of
> > > > > > the
> > > > > > > pie
> > > > > > > > based
> > > > > > > > > on volatility based sizing. So, depending
> on
> > > your
> > > > risk
> > > > > > > parameter,
> > > > > > > > one
> > > > > > > > > might use only 17% of one piece of the
pie,
> > 13%
> > > of
> > > > > > another
> > > > > > > piece,
> > > > > > > > and
> > > > > > > > > 20%, 8%, and 11% of the other pieces.
> > > > > > > > > (3) Sum the used portions of the pie (in
> this
> > > case
> > > > > > > 17+13+20+8+11 =
> > > > > > > > > 69%) and see what you have left. 31% in
> case.
> > > > > > > > > (4) Allocate the remaining cash according
> to
> > > the
> > > > equal
> > > > > > equity
> > > > > > > > model.
> > > > > > > > > This means you get one more 20% piece of
> pie
> > > and
> > > > only
> > > > > > have
> > > > > > > 11% cash
> > > > > > > > > remaining.
> > > > > > > > > (5) Apply the above using your ATR based
> > > position
> > > > sizing
> > > > > > > > recursively
> > > > > > > > > until your cash is minimized. So if you
> only
> > > are
> > > > able to
> > > > > > use
> > > > > > > 9% of
> > > > > > > > > the piece of pie left in (4) you take the
> 11%
> > > > left from
> > > > > > that
> > > > > > > piece
> > > > > > > > > plus the 11% cash and you have 22% --
> enough
> > > for
> > > > another
> > > > > > > position.
> > > > > > > > So
> > > > > > > > > in this case you end up with 7 positions
> and
> > > only
> > > > 2% left
> > > > > > in
> > > > > > > cash.
> > > > > > > > > So your cash is minimized and all your
> > > positions
> > > > adhere
> > > > > > to
> > > > > > > the ATR
> > > > > > > > > based position sizing.
> > > > > > > > >
> > > > > > > > > Like I say, I have no idea how to code it
> but
> > > > intuitively
> > > > > > it
> > > > > > > makes
> > > > > > > > > sense to me.
> > > > > > > > >
> > > > > > > > > Thoughts/comments?
> > > > > > > > >
> > > > > > > > > Dan
> > > > > > > > >
> > > > > > > > > (And, yes, I'm sure I'm not the first
> person
> > to
> > > > think of
> > > > > > it
> > > > > > > so my
> > > > > > > > > apologies to those who have gone before).
> > > > > > > > >
> > > > > > > > > --- In
amibroker@xxxxxxxxxxxxxxx, "Anthony
> > > > Faragasso"
> > > > > > > > <ajf1111@xxxx>
> > > > > > > > > wrote:
> > > > > > > > > > Hello Al,
> > > > > > > > > >
> > > > > > > > > > You stated:
> > > > > > > > > >
> > > > > > > > > > "the lower the volatility, the lower
the
> > risk
> > > > and
> > > > > > > therefore, the
> > > > > > > > > smaller the positionsize for that stock. "
> > > > > > > > > >
> > > > > > > > > > Is this a correct assumption ? ...Would
> you
> > > > want a
> > > > > > larger
> > > > > > > > > positionsize on a less risk position ,
and
> a
> > > > smaller
> > > > > > position
> > > > > > > on a
> > > > > > > > > more volatile one ?
> > > > > > > > > >
> > > > > > > > > > Anthony
> > > > > > > > > > ----- Original Message -----
> > > > > > > > > > From: Al Venosa
> > > > > > > > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > > > > > > > Sent: Saturday, December 11, 2004
7:53
> AM
> > > > > > > > > > Subject: Re: [amibroker]
PositionSize /
> > > > Capital
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > > Ed,
> > > > > > > > > >
> > > > > > > > > > I, too, have confirmed many times
with
> > > > backtesting
> > > > > > what
> > > > > > > you
> > > > > > > > > report, viz,, that positionsize = -x
gives
> > > better
> > > > > > performance
> > > > > > > > results
> > > > > > > > > than using volatility-based MM
> > positionsizing.
> > > > The non-MM
> > > > > > > code I've
> > > > > > > > > used in the past is:
> > > > > > > > > >
> > > > > > > > > > posqty = Optimize
> ("posqty",5,2,10,1); //
> > > no.
> > > > of
> > > > > > stocks
> > > > > > > active
> > > > > > > > at
> > > > > > > > > any given time
> > > > > > > > > > PositionSize = -100/posqty; //equal
> > equity
> > > > model
> > > > > > > > > >
> > > > > > > > > > I think I know what the problem is,
but
> I
> > > > have not as
> > > > > > yet
> > > > > > > > figured
> > > > > > > > > out how to solve the problem with AFL. If
> you
> > > use
> > > > the MM-
> > > > > > > based
> > > > > > > > > positionsize statement as we have
discussed
> > > (equal
> > > > > > volatility
> > > > > > > > model),
> > > > > > > > > i.e., PositionSize = -1 * C/StopAmt, and
> > > examine
> > > > the
> > > > > > > tradelist, you
> > > > > > > > > will likely discover that, often, not all
5
> > > > stocks are
> > > > > > active
> > > > > > > all
> > > > > > > > the
> > > > > > > > > time. In other words, either you have
idle
> > > capital
> > > > > > earning
> > > > > > > nothing
> > > > > > > > or
> > > > > > > > > you have fewer active stocks than you
want.
> > Why
> > > > is this?
> > > > > > > Because
> > > > > > > > some
> > > > > > > > > stocks, which might not be as volatilie
as
> > > > others, use up
> > > > > > > more of
> > > > > > > > > your capital to initiate a position than
a
> > more
> > > > volatile
> > > > > > > stock.
> > > > > > > > > Consequently, your capital is used up
> before
> > > you
> > > > have a
> > > > > > > chance to
> > > > > > > > > enter into your 4th or 5th stock. Instead
> of
> > > > having 5
> > > > > > open
> > > > > > > > positions,
> > > > > > > > > you might only have 3 because of this.
> > Checking
> > > > > > positionsize
> > > > > > > > > shrinking doesn't help because you'll
> > discover
> > > > you might
> > > > > > have
> > > > > > > tiny
> > > > > > > > > positions in your 5th stock. The fewer
> stocks
> > > you
> > > > have,
> > > > > > the
> > > > > > > less
> > > > > > > > > diversified you are, and therefore the
more
> > > risky
> > > > your
> > > > > > > portfolio.
> > > > > > > > The
> > > > > > > > > more risk, the higher the DDs. This
problem
> > > > cannot happen
> > > > > > > with the
> > > > > > > > > equal equity model since all positions
are
> > > equal
> > > > in size,
> > > > > > by
> > > > > > > > > definition.
> > > > > > > > > >
> > > > > > > > > > One possible way around this might be
> to
> > > > increase
> > > > > > your
> > > > > > > margin
> > > > > > > > so
> > > > > > > > > that equity is expanded enough to allow
> full
> > > > funding of
> > > > > > all
> > > > > > > > > positions. But, again, this also
increases
> > your
> > > > risk.
> > > > > > Another
> > > > > > > way
> > > > > > > > > might be dynamically setting your risk to
> fit
> > > the
> > > > > > volatility
> > > > > > > of
> > > > > > > > each
> > > > > > > > > stock individually (the lower the
> volatility,
> > > the
> > > > lower
> > > > > > the
> > > > > > > risk
> > > > > > > > and
> > > > > > > > > therefore, the smaller the positionsize
for
> > > that
> > > > stock).
> > > > > > > However,
> > > > > > > > > this changes your model so that you no
> longer
> > > > have equal
> > > > > > > > > volatility/equal risk (getting closer to
> the
> > > > equal equity
> > > > > > > model).
> > > > > > > > So,
> > > > > > > > > the problem remains unsolved for the
> moment.
> > I
> > > > have not
> > > > > > had
> > > > > > > time to
> > > > > > > > > devote to cracking this problem yet, but
> some
> > > day
> > > > I hope
> > > > > > to
> > > > > > > do
> > > > > > > > this.
> > > > > > > > > If you have any ideas, I'm all ears.
> > > > > > > > > >
> > > > > > > > > > Al Venosa
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > > ed nl wrote:
> > > > > > > > > > Thanks for your effort Al. It is
very
> > > clear,
> > > > > > > > > >
> > > > > > > > > > In one of my earlier posts I posted
> > > > > > > > > >
> > > > > > > > > > // money management block
> > > > > > > > > > stopLoss = Ref(bbb*ATR(20),-1);
> > > > > > > > > > // trade risk
> > > > > > > > > > tr = IIf(Buy,(stopLoss /
> > > > BuyPrice),stopLoss /
> > > > > > > (ShortPrice +
> > > > > > > > > stopLoss));
> > > > > > > > > > // renormalisation coefficient
> > > > > > > > > > rc = 0.02 / tr;
> > > > > > > > > > // positionsize
> > > > > > > > > > PositionSize = rc * -100
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > > it actually gives the same result
as
> > your:
> > > > > > > > > > PositionSize = -2.0 * IIf
> > > > > > (Buy,BuyPrice,ShortPrice) /
> > > > > > > stopLoss
> > > > > > > > > > except for short positions. Exact
the
> > > same
> > > > it would
> > > > > > be
> > > > > > > if I
> > > > > > > > > use: tr = IIf(Buy,(stopLoss /
> > > BuyPrice),stopLoss /
> > > > > > > (ShortPrice));
> > > > > > > > > >
> > > > > > > > > > Unfortunatelly I do not get better
> > > results
> > > > this
> > > > > > way.
> > > > > > > Using
> > > > > > > > just
> > > > > > > > > a simple PositionSize = -10 still gives
> > > somewhat
> > > > better
> > > > > > > results.
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > > rgds, Ed
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > > ----- Original Message -----
> > > > > > > > > > From: Al Venosa
> > > > > > > > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > > > > > > > Sent: Saturday, December 11, 2004
> > 4:19
> > > AM
> > > > > > > > > > Subject: Re: [amibroker]
> > PositionSize /
> > > > Capital
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > > ed nl wrote:
> > > > > > > > > >
> > > > > > > > > > Al,
> > > > > > > > > >
> > > > > > > > > > but how do you implement the
risk
> > > > factor now?
> > > > > > > > > >
> > > > > > > > > > ed
> > > > > > > > > > Ed:
> > > > > > > > > >
> > > > > > > > > > Let us suppose you have
established
> > > your
> > > > risk as
> > > > > > 1%
> > > > > > > (i.e.,
> > > > > > > > > the maximum you are willing to lose on a
> > > trade).
> > > > Let us
> > > > > > also
> > > > > > > > suppose
> > > > > > > > > your initial equity is $100,000. So, if
the
> > > stock
> > > > you buy
> > > > > > (or
> > > > > > > > short)
> > > > > > > > > goes down by the amount based on your
> system,
> > > you
> > > > lose
> > > > > > only
> > > > > > > $1000,
> > > > > > > > > keeping you in the game. Now, let us say
> you
> > > > defined your
> > > > > > > > volatillty-
> > > > > > > > > based stop in terms of 2*ATR(20), which
you
> > > > incorrectly
> > > > > > > assigned to
> > > > > > > > > the variable TrailStopAmount. I
> > > say 'incorrectly'
> > > > because
> > > > > > the
> > > > > > > > > TrailStop in AB was designed to mimic the
> > > > Chandelier
> > > > > > exit,
> > > > > > > which is
> > > > > > > > > basically a profit target type of stock
(it
> > > hangs
> > > > down
> > > > > > like a
> > > > > > > > > chandelier from the highest high since
the
> > > trade
> > > > was
> > > > > > > initiated, if
> > > > > > > > > long). I don't think you want the
TrailStop
> > to
> > > be
> > > > your
> > > > > > money
> > > > > > > > > management stop. Rather, the MM stop is
the
> > max
> > > > stoploss,
> > > > > > > defined
> > > > > > > > as:
> > > > > > > > > >
> > > > > > > > > > StopAmt = 2*ATR(20);
> > > > > > > > > > ApplyStop(0,2,StopAmt,1);
> > > > > > > > > >
> > > > > > > > > > So, if your stock declines by
2*ATR
> > (20)
> > > > from your
> > > > > > > entry,
> > > > > > > > you
> > > > > > > > > exit with a 1% loss. Let's take an
example.
> > > Stock
> > > > A is
> > > > > > > selling for
> > > > > > > > > $40/share. It's ATR(20) is $1/shr or 2.5%
> of
> > > 40.
> > > > Your
> > > > > > stop
> > > > > > > amount
> > > > > > > > is
> > > > > > > > > 2*ATR(20), which is $2/shr. How much
stock
> do
> > > you
> > > > buy?
> > > > > > You
> > > > > > > simply
> > > > > > > > > divide your risk, $1000, by 2*1, which is
> 500
> > > > shares.
> > > > > > This
> > > > > > > amounts
> > > > > > > > to
> > > > > > > > > an investment of $40/shr * 500 shrs or
> > $20,000.
> > > > All of
> > > > > > this
> > > > > > > can be
> > > > > > > > > coded in one simple line of AFL plus the
2
> > > lines
> > > > above
> > > > > > > defining the
> > > > > > > > > MM stoploss:
> > > > > > > > > >
> > > > > > > > > > PositionSize = -1 *
> BuyPrice/StopAmt;
> > > > > > > > > >
> > > > > > > > > > where -1 is 1% of current equity
> > (0.01
> > > *
> > > > 100,000
> > > > > > or
> > > > > > > $1000),
> > > > > > > > > BuyPrice = $40/shr, and StopAmt is 2.
Keep
> in
> > > > mind that a
> > > > > > > negative
> > > > > > > > > sign means 1% of CURRENT equity, which
> means
> > > > compounded
> > > > > > > equity, not
> > > > > > > > > just a constant initial equity of
$100,000.
> > If
> > > > you carry
> > > > > > > through
> > > > > > > > the
> > > > > > > > > above math with your renormalization
> > coefficient
> > > > > > notation,
> > > > > > > you wind
> > > > > > > > > up with the exact same answer.
> > > > > > > > > >
> > > > > > > > > > One more thing. When you place
your
> > > order,
> > > > > > assuming
> > > > > > > you are
> > > > > > > > > trading with EOD data, you do not know
what
> > the
> > > > buyprice
> > > > > > is
> > > > > > > until
> > > > > > > > you
> > > > > > > > > buy the stock, which is the next day. So,
> > what
> > > > most
> > > > > > traders
> > > > > > > do is
> > > > > > > > > base their positionsize on the closing
> price
> > of
> > > > the night
> > > > > > > before
> > > > > > > > the
> > > > > > > > > entry. Therefore, to place an order in
the
> > > > evening to be
> > > > > > > filled in
> > > > > > > > > the morning at the open, your
positionsize
> > > > statement
> > > > > > would
> > > > > > > actually
> > > > > > > > > be:
> > > > > > > > > >
> > > > > > > > > > PositionSize = -1 * C/StopAmt;
> > > > > > > > > >
> > > > > > > > > > where C is the closing price on
the
> > > night
> > > > before
> > > > > > you
> > > > > > > buy.
> > > > > > > > So,
> > > > > > > > > if you use the code SetTradeDelays
> (1,1,1,1),
> > > then
> > > > the
> > > > > > above
> > > > > > > formula
> > > > > > > > > is OK. However, if you use SetTradeDelays
> > > > (0,0,0,0), then
> > > > > > you
> > > > > > > have
> > > > > > > > to
> > > > > > > > > ref the C back a day.
> > > > > > > > > >
> > > > > > > > > > This is probably more information
> > than
> > > > you were
> > > > > > > asking
> > > > > > > > about,
> > > > > > > > > but I hope it helps.
> > > > > > > > > >
> > > > > > > > > > Cheers,
> > > > > > > > > >
> > > > > > > > > > Al Venosa
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > >
> > > > > > > > > > Check AmiBroker web page at:
> > > > > > > > > > http://www.amibroker.com/
> > > > > > > > > >
> > > > > > > > > > Check group FAQ at:
> > > > > > > > >
> > > > > >
> > http://groups.yahoo.com/group/amibroker/files/groupfaq.html
> > > > > > > > > >
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