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--- In amibroker@xxxxxxxxxxxxxxx, "gruntusnomore" <gruntus@xxx> wrote:
>
> Can't get my head around exposure percentage.
>
> In an old list post Tomasz wrote:
> Single bar exposure is: Value of all currently open positions / Total
> Equity (where total equity is value of all open positions plus all
> available funds).
>
> Now this single bar exposure is summed up for all bars and divided by
> number of bars to get system exposure. Exposure is always in the range
> of 0..100%.
>
> In ab appendix example in Howard's book he notes:
> The exposure - the time a system is in a position..
>
> So does the metric refer to time or equity or both? Can someone help
> with an example or two?
>
'Exposure', as defined by Tomasz (or something similar), should be used
in evaluation where a MEASURE of exposure is required.
As a metric, exposure quantifies risk (technically speaking risk should
always be reduced to a number). It isn't so much an absolute as a
relative measure (this is sufficient provided a constant method is
applied to the investments you are comparing).
In Tomasz'z method the ratio of the % portfolio invested/time in the
market is the metric. Using one year as the example and assuming your
time in trade is only one day. If you invest the same amount each time
but do so less frequently then the numerator (the annual sum of your
investments) is smaller while the denominator is constant so your
exposure is reduced and vice versa.
You can then use your exposure as a Risk/Reward metric.
If two systems have the same PA% return but one has a lower %exposure
then it is a superior investment (if maximizing PA%/%exposure is your
chosen objective).
BASIC EXAMPLE:
If you invested 100% of your portfolio (capital) every day for a year
and you returned 15% PA your exposure would be:
(250 bars * 100%)/250 bars per year == 100%
(the investment could be divided into 10 'trades' of 10% of your
portfolio - it doesn't matter - it is the total investment per bar
expressed as a % of portfolio that counts).
Your Return/Risk metric would be 15/100 == 15% (exactly what you would
expect since you were fully invested and returned 15% PA.
Indirectly it is a measure of 'opportunity cost' - if you can achieve
15%PA and you are only in the market half of the time then you can
invest somewhere else during the 'out of market period'.
Brian_z
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