Q.1 Drawing from your knowledge bank, If a cheaper broker was used would you still go with option 1 ? (consider all trade position sizes having a $10 fee)
Answer
(a) There is no "cheaper broker" I can use. eSuperfund only allows two broker options. (previously discussed only a few posts back)
(b) If the commission rate was fixed at $10.00 (no matter the bet size) I would prefer & use "pyramid my position sizing", which means I would increase the bet size over adding additional positions.
Q.2 Where would you cap the number of positions using option 1 before considering moving to option 2 ?
Answer
40 positions
Q.3 What method would you use to determine starting bet size for option 2 ?
Answer
When 40 positions are full.
Moreover
I'll have this problem to sort out "about a year from now" when I double our money from $20k to $40k. (going from 20 positions to 40 positions trading with $1k bets)
FYI
One of my strategies trades a (40) position portfolio & has been as high as (63) positions. Members scoffed at the idea of trading such a large number of positions in a strategy. I've been shown "graphical proof" that trading such a larger number of position wouldn't achieve any better than an Index Fund. What? - my trading results don't align with that summarisation, nor doesn't the results
@peter2 achieved trading a (40) position portfolio.
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#1 This is a quote of @peter2 about trading a larger position portfolio
@Skate Very interesting that your testing shows 53 is optimal number of positions whereas most trend following systems indicate 15 - 17 with most people happy to use 20. Why is there such a difference if all systems are trend following systems? So overall I accept that the Hybrid strategy will do a slightly better job than most mainstream trend following systems
but I fail to understand why there's a huge difference in the optimal number of portfolio positions between apparently similar systems. I'm not interested in the actual optimum number. I'm trying to understand the difference between 17 and 53.
My knowledge and experience would say that a portfolio with 50 positions would not beat the market index.
Clearly this has been challenged by skate's work.
#2 This is a quote of @peter2 about trading a larger position portfolio
re: Skate's hybrid system results for 17-18. Wow. Congrats and damn,
you've forced me to re-evaluate my preference to hold 8-12 positions in my portfolios. Did you also research this aspect for your system? Clearly with lots of small positions one big hit isn't going to be noticed and with so many positions you're almost certain to get into most of the best trends of any period. Now I have to research this myself. More work to do.
#3 This is a quote of @peter2 about trading a larger position portfolio
Thank you
@Skate. I like to highlight the unpalatable moments such as the recent losers in the ASX40P portfolio.
It's all to easy to post when things are going well and stroke our own egos. Had I started the research portfolio (ASX40P) a few weeks earlier it would have contained FMG and a few gold stocks. It may have been fully invested and most likely wouldn't have had BLD and BIN. The timing was unlucky.
Timing plays a huge part in the performance of a portfolio.
#4 This is a quote of @peter2 about trading a larger position portfolio
Well,
@Skate that's a substantial request. I will write an opinion piece on the optimum number of positions in an ASX share portfolio.
It has exceeded my expectations. I was/am pleasantly surprised by the results. One benefit and advantage of the 40 position size is that it forced me to include positions outside my normal stock universe.
#5 This is a quote of @peter2 about trading a larger position portfolio
Comments from a stunned mullet:
There's no doubt that a 30+ portfolio, that is actively managed will thump any index, provided the positions are diversified throughout the whole market. You are unlikely to get this out-performance sticking to the top 300. A couple of benefits from a 30+ position portfolio. I may have mentioned them before but by repeating myself I may get it into my thick head. It's easier being patient with a lot of trades when the portfolio is going well. The second benefit of a large number of positions is that I'm more willing to start a trade in a perceived "riskier" stock. This seems too easy, doesn't it. I'll admit I'm finding it tough to start so many positions in my own accounts. The evidence is here in this thread, but I tend to hit resistance at 16 positions even though there's plenty of cash available.
@peter2 when I first posted about my Hybrid 40 position portfolio in the 'Dump it here' thread most was sceptical that running such a high number of positions "goes against normal conventions" reinforcing that the strategy wouldn't beat a index but to your credit you stated
"Clearly this has been challenged by skate's work" deciding to give the idea a go with your "ASX40 POS Portfolio"
@peter2 - shift his opinion after trading a 40 position portfolio
(a) "My knowledge and experience would say that a portfolio with 50 positions would not beat the market index"
to
(b) "It has exceeded my expectations. I was/am pleasantly surprised by the results. There's no doubt that a 30+ portfolio, that is actively managed will thump any index"
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# Let me explain further
Pyramiding of positions (increasing bet sizes with closed profit is beneficial to the profitability of any strategy. If you are in any doubt, look back at my equity curve over the last couple of years (The equity curve has been posted only a few posts back)
"Pyramiding Explanation" (positionSize)
Pyramiding my positionSize is a re-balancing technique to vary my position sizes (my next series of bets) with the reinvestment of profits. I'm a TRUE believer in "pyramiding" my Position-sizing (I've discussed many times in the "Dump it here" thread) "Position-sizing Pyramiding" is to re-balancing my weekly position-sizes (bet sizes). By "Pyramiding (re-balancing) my PositionSizes" every dollar (I call them soldier) is put into the battle to fight the good fight.
How?
Position-sizing uses my trading Bank balance - the Bank feed is sent to a parameter setting within the AFL strategy code. It's simply a way of putting every dollar to work.
What is the Re-Balancing Formula?
Trading Bank Balance/outstanding positions = new "PositionSize"
This will now be the new bet for each & every pending trade (the new PositionSize also calculates the number of shares to buy in the pre-auction)
Skate.