OmniVest User Forums
Risk Control Requests (& other Account Settings)
Position Sizing Adjusted for Volatility
9 replies, 2357 viewings
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OmniVest User Forums
Risk Control Requests (& other Account Settings)
Position Sizing Adjusted for Volatility
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Last Activity 5/17/2016 11:06 AM 9 replies, 2357 viewings |
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John W Elite    Posts: 654 Joined: 10/11/2012 Location: Sydney, NSW, Australia  User Profile |
Deciding how much capital to allocate to systems with positive expectations is the key to the size of drawdowns and how much money is made. In many of the Omni Trader University training courses the instructors emphasised the importance of smooth charts as part of the setup criteria, and with OV we will be able to trade an enormous range of stocks from very large to very small with significant differences in smoothness of the charts, therefore the importance of adjusting for volatility. Is it possible to add a third account setting to adjust the trade size based on volatility, so that the more volatile a stock, the smaller the trade size, similar to the Turtle Trader approach. The intent is to keep risk fixed to (configurable) 1% or 2% of equity based on (configurable) the 14 day ATR. This rule to apply with the two other trade size account settings, so that the trade size is the smallest of: This fixed risk rule, The % volume rule, And the maximum number of trades on the same symbol rule. The only question that comes to my mind is whether or not adding this fixed risk rule would improve the OV simulated outcomes (it’s a moot point whether theories actually hold up when tested) - is it possible for the programmer to add this rule and test if it would make a positive difference and if so, to implement it? John | ||
| Jim Dean Elite  Posts: 1059 Joined: 10/11/2012 Location: L'ville, GA User Profile |
It would be WONDERFUL if Nirvana would include this. However, I am personally not comfortable with the limitations of the current Turtle-Trader plugin's "fixed risk" logic in PortSim, so I hope that Nirvana will be willing to consider an enhanced algorithm (which has the current one as a subset via parameter settings). | ||
| Matt B Veteran Posts: 105 Joined: 10/11/2012 Location: Austin User Profile |
Thanks for bringing this up. I have been and continue to be a follower of Van's work on position sizing and highly recommend his book "Definitive Guide To Position Sizing". I would like to see a couple of his position sizing algorithms incorporated into the OT platform. His position that you achieve your financial goals through position sizing has merit. Along similar lines, I have always wanted to be able to institute the notion of R values for risk. Just trading a % of equity has never appealed to me, but I have done it with RTM7. I would much rather have a risk amount, which can be based on volatility, some ATR multiple that will be way out of the way but there in case of a huge black swan event. My testing has shown that 6-8 ATRs is out of the way but still provides some measure of disaster protection. Effectively, it hasn't been hit to date, only meaning that it will at some point so in essence, I am trading without stops. I like the idea of basing my returns in terms of R values. If I can get a 20R return one month and I am trading .5% of my account as my R value, then I know I made around 10% that month. I can also use it to calculate my system quality number and effectively compare systems to each other. Thanks for bringing this topic to the forefront. Matt | ||
| Eric Ranger Member Posts: 7 Joined: 10/11/2012 Location: Ottawa, Ontario User Profile |
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| John W Elite Posts: 654 Joined: 10/11/2012 Location: Sydney, NSW, Australia User Profile |
There are too many competitors to OV, and too few skilled artisans who have the ability to conceive and write the OV code, so I hope that Nirvana takes you up on your offer! John | ||
| Jimmer Member Posts: 22 Joined: 10/11/2012 Location: Wittmann, AZ User Profile |
At the risk of adding to the complexities of OV/TP implementation we have an additional resource to help adjust position sizes for volatility: the concepts of John’s coastal neighbor in Brisbane, Daryl Guppy, in GMMA2 . It definitely is a strategy; I think it might/could be used to continually adjust port/account funds settings.It uses a concept of Count Back Lines (CBL) to limit risk, in a rally starting from the base breakout, then continuing throughout the trend to the topping and breakdown phases by adding and subtracting positions, of varied sizes, as made desirable by changing volatility. Short side works too. Most obvious is its value as an OV strategy because it follows RTM. It might be possible to dollar size continually variable allocations for strategies, ports, and accounts using the CBL and/or the measureable converging/diverging of the Guppy Multiple Moving Average (GMMA) of an index. Or simply maybe an MA of an MA, got to think about that. I use the VTI Total Market Index ; better than SPY IMHO. Sorry for drifting, back to the CBL. The CBL strat is better, less risky pyramiding and I think better than Turtle. The CBL counts back an adjustable number of bars (default 3) to identify recovery (not the bottom) from a base and signals a small (pilot) position. Going forward the CBL signals additional larger positions in the breakout and trend while also maintaining stop losses and it self-adjusts for volatility at each bar regardless of timeframe, RT/EOD. Another important feature of the strategy is that as the trend progresses in the last third or so of the run where there is more risk of failure or breakdown additional positions are progressively smaller thereby minimizing risk; the last position is smaller than previous ones. Too, when in mid-trend when it can be difficult to tell, until it’s too late, whether a pullback is merely a breather or a breakdown the CBL stop loss can exit the latest position if necessary and/or re-enter if the trend takes off again. As I have already said it’s a strategy. I am a first grade C student of Oscript, still in kindergarten with Olanguage. I “THINK” that if a strat can return a buy/sell signal, string, value, etc. it could be set to control strat/port/account settings. Guys, if you think I’m full of it here, tell me. I’m used to it. I can take it really, I’m married. No worries! Afterthought: GMMA2 is available to all OTU members through the All Access Pass and several customers already own it. I’ve used it for years to position trade. | ||
| John W Elite Posts: 654 Joined: 10/11/2012 Location: Sydney, NSW, Australia User Profile |
I agree with your comments about Daryl Guppy and the Countback Line. Prior to joining the Nirvana Club I was heavily invested in a competitive product to OmniTrader, and I undertook a lot of research comparing the CBL with ATR for position sizing and setting stops. I finally concluded that the two approaches were similar, but the best results on most charts and back tests was to set position sizing and stops based on the tightest of the two alternatives. In this particular case OmniVest has already confirmed an approval to set an ATR global stop and we are still waiting to see if they will also use such a stop for position sizing and perhaps also take this down to strategy level, plus there is the generous offer by Jim Dean to share some of his advanced work in this area. I don’t know the copyright restrictions that may be in place for Nirvana after the work they did with Daryl Guppy, nor do I know the workload in front of OmniVest, but the CBL is another valid input for consideration for position sizing and stop placement. John | ||
| DCGSyd Member Posts: 6 Joined: 2/28/2013 Location: Roseville, NSW, Australia User Profile |
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| DCGSyd Member Posts: 6 Joined: 2/28/2013 Location: Roseville, NSW, Australia User Profile |
http://individuals.interactivebrokers.com/en/?f=%2Fen%2Fgeneral%2Feducation%2Fwebinars.php%3Fib_entity%3Dllc Webinar Notes http://www.interactivebrokers.com/webinars/WB_1647_Waverly_Position_Sizing.pdf Access Recorded Webinar here: https://interactivebrokers.webex.com/ec0606l/eventcenter/recording/recordAction.do?theAction=popreco rd&AT=pb&renewticket=0&isurlact=true&recordID=59532927&apiname=lsr.php&rKey=cc9cddcc12a1a67c&format= short&needFilter=false&&SP=EC&rID=59532927&siteurl=interactivebrokers&actappname=ec0606l&actname=%2F eventcenter%2Fframe%2Fg.do&rnd=5533865567&entappname=url0108l&entactname=%2FnbrRecordingURL.do [Edited by DCGSyd on 3/15/2013 9:03 PM] | ||
| OCC Regular Posts: 85 Joined: 3/7/2013 User Profile |
Illustrates effects of thoughtful position sizing and R multiple profit taking. a nugget: "Guiding principles: No one loss can ever take you out of the game Minimize the damage from a string of losses Eliminate degrees of freedom Drive toward consistency in the bottom line" Consider the wisdom to temper temptations to over-commit capital (and risk blowing up an account) to chase "too good to be true" equity end values that don't fit real-world liquidity/slippage conditions. Thanks to all who have posted good ideas for Risk Control Requests. Let's hope that Nirvana will take heed, and raise levels of sophistication for risk controls at trade, portfolio, and account levels. |
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