OmniVest User Forums
Risk Control Requests (& other Account Settings)
Effects of "Allow settings" & "Max Exposure"...
6 replies, 1311 viewings
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OmniVest User Forums
Risk Control Requests (& other Account Settings)
Effects of "Allow settings" & "Max Exposure"...
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Last Activity 5/17/2016 11:06 AM 6 replies, 1311 viewings |
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Mark Holstius Elite    Posts: 744 Joined: 10/11/2012 Location: Sleepy Hollow, IL  User Profile |
Some of these are fairly transparent: Minimum Price/Share, Min Avg Daily Volume, etc. However, 2 settings in particular (“Allow settings to reduce trade size” & “Maximum Exposure % per Symbol”) have a large effect but are difficult to analyze once an account has been trading for a while. I’ve found that by looking at the trades taken in the first few days an account is open gives insight into the behavior of these settings and what they accomplish. I’ve taken the same account and started “trading” on 1/1/2007 with 6 different combinations: “Allow Settings…” both Unchecked and Checked and “Max Exposure…” at 10%, 20%, & 30%. With “Allow Settings” Unchecked, increasing “Max Exposure” allows strategies with increased QTY% to fire and be filled (1-3 below). At 10% 20 trades are taken / at 20% 25 trades are taken / and at 30% 29 trades are taken over the same period. With “Allow Settings” CHECKED, the same # of trades (29) is taken at all 3 “Max Exposure” levels. The lower “Max Exposure” limits in #1 & #2 constrain the QTY% to the “Max Exposure” chosen (10% or 20%) for strategies that would normally have higher QTY% entries. There are some strategies in OV that use 35-40 QTY%, so it might be “disconcerting” to enter a trade with 35% of your capital – but you can choose to limit your exposure in trades by using the “Max Exposure” setting. By checking the “Allow settings” box at the same time, you can include the trades from those higher QTY% strategies at a lower QTY% for the trade. Knowing the logic that’s working with these 2 settings, here are the results of trading with these 6 different combinations of settings from 1/1/2007 – present in the same account. No other account settings were checked or used for these runs other than the "Allow Settings...", "Maximum Exposure...", and commissions. These settings have an obvious effect on both risk and reward. Thanks for the education, Steve… Mark [Edited by Mark Holstius on 1/21/2014 6:41 AM]  Attached file : Account_Settings.jpg (3708KB - 625 downloads) Attached file : Account_Setting_Results.jpg (1514KB - 591 downloads) | ||
| BrianD Legend Posts: 302 Joined: 2/23/2013 Location: Grand Rapids, MI User Profile |
I noticed how enabling "Allow setting to reduce trade size" appeared to improve overall % Invested and # of trades. But never realized the magnitude of trades bypassed when disabled. Thanks for the deep dive. I'm glad Nirvana saw value in offering this parameter. | ||
| Steve2 Elite Posts: 750 Joined: 10/11/2012 Location: Annapolis, MD User Profile |
What was the end date for the simulations? I'm trying to understand the difference between the CALMAR ratios in tests 3 and 6. Are you using some strategies that have an average allocation percentage >30% and they just didn't generate any trades during the first week shown in your tables? Steve | ||
| Mark Holstius Elite Posts: 744 Joined: 10/11/2012 Location: Sleepy Hollow, IL User Profile |
Yes, that's an example of strategies that have a QTY% > 30% that were then used at a 30% limit when "Allow Settings..." was checked. Otherwise, 3 & 6 would be identical. A bonus in the example. Another thing in the example: Look at #1 vs #4 Both only put 10% Qty in any trade, but by checking "Allow Settings..." you take advantage of the higher Qty% strategies (at lowered 10% entries) and increase the ending equity from 1.6M to 3.8M. The end date was last Friday 1/17/14. Thanks, Mark [Edited by Mark Holstius on 1/21/2014 7:20 AM] | ||
| Mark Holstius Elite Posts: 744 Joined: 10/11/2012 Location: Sleepy Hollow, IL User Profile |
Suppose you decide 20% is the highest you want to put on any trade (#2). By checking "Allow Settings...", you get the benefit of the strategies with "normally" higher Qty% strategies, but now with their entries lowered to 20%; Ending Equity goes from 3.7M to 5.4M and CALMAR from 3.90 to 4.56 (#2 vs #5). Comparing #3 to #5: The highest Qty% on any trade is lowered from 30% to 20%, but by checking "Allow Settings..." the Ending Equity goes from 4.9M to 5.4M and the DD decreases. CALMAR increases from 4.12 to 4.56. Mark [Edited by Mark Holstius on 1/21/2014 8:26 AM] | ||
| kmcintyre Elite Posts: 890 Joined: 10/11/2012 Location: Portland, OR User Profile |
What I'm noticing is the nearly two year flat spot (mid 07 - march 09). That's a long time to be patient. I'm nearly a year into live trading. Patience is a virtue, they say. That observation has nothing to do with settings. Sorry! Cheers! Keith | ||
| Steve Mayo Legend Posts: 414 Joined: 10/11/2012 Location: Austin, TX User Profile |
The thing I notice when comparing 4, 5, and 6 is that, yes, whereas normally the max allocation per trade setting does restrict strategy selection, OV does allow the strats with higher default allocations to be traded when the "allow settings" box is checked, but it certainly looks like it only allows the LAST ONE of the day to be taken. In other words, the impact of that setting -- and the reason the return goes up -- is mainly in letting the portfolio reach a higher level of %invested (plugging another trade into that last little bit of available margin); conversely, it does not appear to be so much the benefit of having added that particular high-allocation strategy, per se. In other words, you might well achieve the same increase in equity simply by adding more high-frequency, low-allocation strategies to the mix. The max allocation setting (10%, 20%, etc.) is still likely to exclude most of the signals from the high-allocation strategies. At least, compared to an account that allows 30-40% per-stock allocation. The result is that the process that OV uses to select/exclude signals day-to-day becomes a little more unpredictable. Don't get me wrong, there is value in testing and optimizing a portfolio. But, we have to keep in mind that some trades win/lose a dollar or two and some trades win/lose $1500 -- that's a huge standard deviation. Over a short period of time, a very small number of trades -- being included or being filtered out -- can make a big difference in the return for that period. We all have seen how you can get a whole string of small wins when all of a sudden a big lose comes along and sets you back several months. When backtesting such a high-variability system (as most leveraged stock trading systems are), it all depends on where you draw your boundries as to whether you call it a win or a lose for the period. That's why trying to optimize a portfolio using frequent (monthly, quarterly) re-optimization is so hard. You just don't know if the period you are evaluating is really reflexive of the portfolio's innate character or just the fluke of a few lucky/unlucky ball drops in the filtering lotto. It's why I keep recommending we use risk-adjusted and benchmark-relative metrics when scoring our portfolio candidates and not look too closely at a single month (or maybe even 2 years as Keith points out, but I agree, who wants to wait years to find out if your system is working well!) For that reason also, I think the best approach is to optimize our selection of strategies in our portfolios, assemble and validate (using good metrics) the best portfolio we can using only minimal filters, and then once the best candidates are narrowed down, THEN look at the value of using the filters in the manner you describe when live-trading to control one-big-bad-trade risk, minimize commissions, avoid un-shortable stocks, etc. |
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