Combo-MF Position Sizing

[pdp-brugge]

I have finished the third part of what seems to be a trilogy.
It's all about "position sizing" or what others call "money management".
To me trading without a proper position sizing technique is just like driving blindfolded in rush-hour with a very fast car that has no airbags nor safety-belts.

PdP

[yakovcohen45]

PDP,

Thank you for sharing your great work with the forum.

Can you send again please the v1 ?

Yakov.

[pdp-brugge]

Yakov,

here it is:

[pdp-brugge]

I have received a private message for Trev that I will answer publicly.

Thank you tremendously for your hard work on the Combo_MF.

A couple of (very naive) questions please on your table.

You show a Kelly score of 11.94

You show a NoFear score of 0.1005

You show risk% factors of 0.35%,0.44%,0.29% and 0.48%

How do these relate practically to the amount invested currently in TQQQ and SMN ?

The Risk% figures of 0.35%, 0.44%, 0.29% and 0.48% Do these mean 35%, 44%, 29% and 48% of total equity to invest ?

Sorry to be so thick but it is best sometimes to appear stupid if something is not understood.

Thanks in advance.

Trev

If the Risk% says 0.35% for Combo-MF, I will take a maximum risk for trading TQQQ of 0.35% of the at that time available equity.

Example:
Let's assume that the equity is $ 10,000.00. The maximum risk for a trade in TQQQ should be $ 10,000.00 x 0.35% = $ 35.00. The number of shares to buy must be calculated with the ATR3 of TQQQ at that moment. Let's assume the ATR3 for TQQQ is 2.1963. The ideal ATR multiplier that I have found through back tests for a long trade in TQQQ is 1.2. The possible number of shares of TQQQ to be bought is

Risk / ATR3 x ATR multiplier

or $ 35.00 / 2.1963 x 1.2 = 13 shares

This seems like a very small position size. Because the risk to be taken is limited by my strategy is now low, than it makes sense to take very small positions for now. The risk is so low because my strategy has detected that the different models do not perform good for the moment. If Kelly is low then the overall performance of the models as a whole is not good. If NoFear is low then the strategy has detected that there where significant recent draw downs. Both are true for the moment, unfortunately.

PdP

[manucastle]

I have received a private message for Trev that I will answer publicly.



If the Risk% says 0.35% for Combo-MF, I will take a maximum risk for trading TQQQ of 0.35% of the at that time available equity.

Example:
Let's assume that the equity is $ 10,000.00. The maximum risk for a trade in TQQQ should be $ 10,000.00 x 0.35% = $ 35.00. The number of shares to buy must be calculated with the ATR3 of TQQQ at that moment. Let's assume the ATR3 for TQQQ is 2.1963. The ideal ATR multiplier that I have found through back tests for a long trade in TQQQ is 1.2. The possible number of shares of TQQQ to be bought is

Risk / ATR3 x ATR multiplier

or $ 35.00 / 2.1963 x 1.2 = 13 shares

This seems like a very small position size. Because the risk to be taken is limited by my strategy is now low, than it makes sense to take very small positions for now. The risk is so low because my strategy has detected that the different models do not perform good for the moment. If Kelly is low then the overall performance of the models as a whole is not good. If NoFear is low then the strategy has detected that there where significant recent draw downs. Both are true for the moment, unfortunately.

PdP

Thanks very much for your quick reply.

If it is not to much work, would it be possible to include the current ATR3 and the ATR multipliers in your table ?

Thanks in advance.

Trev

[manucastle]

I have received a private message for Trev that I will answer publicly.



If the Risk% says 0.35% for Combo-MF, I will take a maximum risk for trading TQQQ of 0.35% of the at that time available equity.

Example:
Let's assume that the equity is $ 10,000.00. The maximum risk for a trade in TQQQ should be $ 10,000.00 x 0.35% = $ 35.00. The number of shares to buy must be calculated with the ATR3 of TQQQ at that moment. Let's assume the ATR3 for TQQQ is 2.1963. The ideal ATR multiplier that I have found through back tests for a long trade in TQQQ is 1.2. The possible number of shares of TQQQ to be bought is

Risk / ATR3 x ATR multiplier

or $ 35.00 / 2.1963 x 1.2 = 13 shares

This seems like a very small position size. Because the risk to be taken is limited by my strategy is now low, than it makes sense to take very small positions for now. The risk is so low because my strategy has detected that the different models do not perform good for the moment. If Kelly is low then the overall performance of the models as a whole is not good. If NoFear is low then the strategy has detected that there where significant recent draw downs. Both are true for the moment, unfortunately.

PdP

PdP,

$35.00/2.1963 X 1.2 = 19 shares (not 13 shares) Is this correct ?


Trev

[pdp-brugge]

No, sorry - my fault - I should have placed parentheses.

The formula to calculate the number of shares to buy/sell is

Number of Shares = (Equity * Risk%) / ( ATR3 * ATR multiplier)

in my example, this will be

( $ 10,000.00 * 0.35% ) / ( 2.1963 * 1.2 ) = 13.27991

The result of this calculation is rounded downwards.
The stop-loss is placed at entry-price - ( ATR3 * ATR multiplier).
Let's assume that the entry price is $ 48.3930 then the initial stop-loss should be placed at 45.7574.
If the trade completely goes wrong and the stop-loss is hit, the loss shall be 13 * ( 48.3930 - 45.7574) = $ 34.2628

PdP

[pdp-brugge]

Trev,

this is the expanded table
the ATR3 and ATR Multiples are added for the models where trades can be made

PdP

[manucastle]

Trev,

this is the expanded table
the ATR3 and ATR Multiples are added for the models where trades can be made

PdP

Hi PdP,

That's excellent. Thank you very much indeed for your hard work. :O)

Trev

[lisa]

pdp,

thanks so much for sharing your work. this is very interesting, but i am surprised that you chose XLI as one of your 4 studies and UXI/SIJ as the trading vehicles within. the volume is so low on both of those ETFs that i wonder is it realistic to trade them? was there another runner up that had better volume in your tests, or were the results for the other candidates too poor?

i know you spent a tremendous amount of time on your studies, so thanks again for sharing it with the group,
lisa