Dump it Here

[Skate]

For full disclosure
The records below brings the "HappyCat Strategy" in line with the "Action Strategy" listing all the relevant details for full disclosure. Percentage folio returns will be interesting to track. The "HappyCat Strategy" will be paper traded in the same way as I would trade any new strategy. Position sizing starts at $15k & will max out at $25k.


























Skate.

 

[WilsonFisk]

A question that may have been answered in the 3,500 posts prior to this one, but I am curious how others feel on a number of factors in developing a system. I'll place this in 2 parts, 1 part the questions, and then 1 part my thoughts (as narrow minded as they may be )

Part 1 - Questions

1) position sizing - what impact does this have on your decision making process on how to employ a system within your portfolio of systems.

2) universe of assets being traded - what controls do you like to employ to ensure you are actually able to exit a trade, and that you maintain a 'comfort level' with the trade

Part 2 - Thoughts

1) Position Sizing - I believe that a good system has your Alpha/Edge/Absolute Awesomeness whether it is fixed, fractional or percentage based position sizing, it is broken it if only works with one.

But I also believe there is benefit in trading fixed amounts for certain strategies, and that there is benefit for increasing position sizing for others.

Fixed Positions can provide greater risk management as you can possibly increasing your number of positions and take more positions rather than increasing a position size. Downside is impact of commissions and more work inputting trades.

Fractional/Increasing Position sizes allow you to compound your return without increasing cost or workload. You do however decrease your 'comfort level' and take on significantly more risk.

2) Universe - I personally like to see liquidity in both volume and turnover in a stock over a look back period, so that I know that when I want to get out, I should have a good confidence level of doing so.

This has meant that when I apply these overlays I can trade quite a few stocks outside the ASX200 and even ASX300 that I may have otherwise missed if I restricted my self to those indexes.

Counterpoint I may have lost and may continue to lose some opportunity in less liquid but potentially better performing stocks.

TLDR - I Like to use both Fractional and Fixed Position Sizing as they provide diversification and return smoothing. Whilst I don't need to use Volume, Turnover or Price to enter a trade - they give me my 'comfort level' so I can feel confident that when the world goes upside down I can cash my chips in.

Attached is an example of the difference in position sizing for my BBO Strategy (Daily) from 01/07/2015 to 30/06/2020.

 

[WilsonFisk]

Also - wanted to thank all contributors to this thread - it has made some good shifts in my thinking around developing future systems.

I have found the index filter vs sentiment filter a really good read and my BBO Daily Strategy v4 will move from index to volatility filtering, with some pretty satisfying results (I hope).

This mammoth bible of info, has inspired me to code more systems over the last 12 months, than I had done to date (out of many years investing and trading). Many of those systems suck, but it is a learning journey.

Thanks people.

 

[willoneau]

View attachment 106533
For full disclosure
The records below brings the "HappyCat Strategy" in line with the "Action Strategy" listing all the relevant details for full disclosure. Percentage folio returns will be interesting to track. The "HappyCat Strategy" will be paper traded in the same way as I would trade any new strategy. Position sizing starts at $15k & will max out at $25k.

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View attachment 106535




View attachment 106536




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Skate.

Hi Skate, how long do you usually paper trade before you decide to trade live or discard or change the system?

 

[Skate]

Hi Skate, how long do you usually paper trade before you decide to trade live or discard or change the system?

@willoneau paper trading is for a minimum of 6 months. During the paper trading evaluation period there needs to be an extreme of trading conditions otherwise the period is extended.

Paper trading
This is the final stage of system development. Paper trading is used to evaluate the system using out-of-sample data. This final evaluation period is definitely not a period for fine tuning the parameters or settings as “ all the changes” needs to be put to bed well before the paper trading stage.

When do you disregard the system?
When it deviates from the expected results.

Skate.

 

[Skate]

A question that may have been answered in the 3,500 posts prior to this one, but I am curious how others feel on a number of factors in developing a system. I'll place this in 2 parts, 1 part the questions, and then 1 part my thoughts (as narrow minded as they may be )

Part 1 - Questions

1) position sizing - what impact does this have on your decision making process on how to employ a system within your portfolio of systems.

2) universe of assets being traded - what controls do you like to employ to ensure you are actually able to exit a trade, and that you maintain a 'comfort level' with the trade

Part 2 - Thoughts

1) Position Sizing - I believe that a good system has your Alpha/Edge/Absolute Awesomeness whether it is fixed, fractional or percentage based position sizing, it is broken it if only works with one.

But I also believe there is benefit in trading fixed amounts for certain strategies, and that there is benefit for increasing position sizing for others.

Fixed Positions can provide greater risk management as you can possibly increasing your number of positions and take more positions rather than increasing a position size. Downside is impact of commissions and more work inputting trades.

Fractional/Increasing Position sizes allow you to compound your return without increasing cost or workload. You do however decrease your 'comfort level' and take on significantly more risk.

2) Universe - I personally like to see liquidity in both volume and turnover in a stock over a look back period, so that I know that when I want to get out, I should have a good confidence level of doing so.

This has meant that when I apply these overlays I can trade quite a few stocks outside the ASX200 and even ASX300 that I may have otherwise missed if I restricted my self to those indexes.

Counterpoint I may have lost and may continue to lose some opportunity in less liquid but potentially better performing stocks.

TLDR - I Like to use both Fractional and Fixed Position Sizing as they provide diversification and return smoothing. Whilst I don't need to use Volume, Turnover or Price to enter a trade - they give me my 'comfort level' so I can feel confident that when the world goes upside down I can cash my chips in.

Attached is an example of the difference in position sizing for my BBO Strategy (Daily) from 01/07/2015 to 30/06/2020.

@WilsonFisk what a great post. I’ll be very interested in what others have to say as I’ve expressed my views on the two questions you have raised many times.

Skate.

 

[willoneau]

My understanding - position sizing has to take into account ,
not being too small to be affected by commissions and not being too large as to move share price.
Skate uses trailing stops, stale stops and GTFO stops that I am aware of.

 

[Skate]

My understanding - position sizing has to take into account

@willoneau you are correct "position size" is important. Trading small amounts over a short period using a "percentage-based" position sizing beats a fixed dollar position size hands down. When you start to trade larger amounts over a longer period, it becomes very hard to move those amounts into the markets without a large amount of increased slippage.

whether it is fixed, fractional or percentage based position sizing, it is broken it if only works with one.

@WilsonFisk is 100% correct in his statement.

Fixed Positions can provide greater risk management as you can possibly increasing your number of positions and take more positions rather than increasing a position size. Downside is impact of commissions and more work inputting trades.

I say each to their own, if it works for you it's right for you. Testing theories is one thing, trading the theory is another. Any serious trader quickly learns that theory & practical is like chalk & cheese.

Fractional/Increasing Position sizes allow you to compound your return without increasing cost or workload. You do however decrease your 'comfort level' and take on significantly more risk.

Houston we have a problem - if you have a successful trading system the compounding effect of using a "fractional position sizing" as I said previously - it becomes very hard to move large amounts into the markets incurring a large amount of slippage.

Simple works for me
Pyramiding position sizing works for me as all available funds are constantly in the markets. Most fail to realise pyramiding works both ways. When trading is not going well, position sizing decreased because of the compounded losses, even a string of losses is reflected. But hey, when times are good why shouldn't I take advantages of these conditions & increase my bet sizes. It's the "make hay while the sun shines" theory.

Skate.

 

[willoneau]

When you say pyramiding , do you mean increasing position size for next trade or buying more of same trade at higher price?

 

[Skate]

@WilsonFisk raised a few good points about strategy development.
I've been working on the "KingFisher Strategy" for over three years, the theory & the idea behind the strategy is quite sound.

Background
The KingFisher is a unique strategy that quickly adapts to the volatility within a price movement. The responsiveness to that movement is increased with data smoothing. Substantial data smoothing quickly adapts to these changes, fine-tuning the entry process but exiting the KingFisher strategy quickly is still elusive.

The last 12 months of trading
Without a doubt, the last 12 months has had it all, the highs mixed with the extreme lows because of the COVID-19 crash. @WilsonFisk methodology of fixed dollar position sizing versus using a 1% Fixed Fractional method (the capture below) makes a difference over a short period but lacks "tradeability" over a longer journey where compounding is not your friend.

Here's the rub
As I said the methodology behind the KingFisher Strategy is sound but the COVID drawdown would have been unstomachable. Nailing the exit is critical because "it's where the money is made". Long story short the strategy is a "work in progress". Persistence, hard work & determination is required for this strategy to see the light of day & get to the paper trading stage. Sadly it's a long way off.

Let's examine the backtest results from the last 12 months
There are three parts to the posted capture.
(1) Fixed Dollar versus Fixed Fractional position sizing (net profit)
(2) The corresponding maximum percentage drawdown that in live trading would be unstomachable
(3) The most important - don't confuse percentages with dollars (don't fall for the trap of accepting percentages)

Looking at percentages
If you view backtests in percentages you become quickly conditioned & accepting. A drawdown of 28.91%, yeah, that's acceptable & let's face it, we have all made the same remark at one stage or another. But convert percentages to dollars & it takes on a new meaning. Percentages are relevant to the size of your portfolio.
(a) On a $20k portfolio, 28.91% is bearable but if you are trading a large portfolio it takes on another meaning.
(b) Trading a $1m or $2m portfolio 28.91% becomes very relevant indeed. That's nearly 1/3 of your funds "GONE"



Skate.

 

[WilsonFisk]

Houston we have a problem - if you have a successful trading system the compounding effect of using a "fractional position sizing" as I said previously - it becomes very hard to move large amounts into the markets incurring a large amount of slippage.

Indeed, and this is where my Universe controls starting kicking in, I want to make sure that any volume and turnover I add from my trading doesn't create said issues.

Only starting with small portfolio's, and having diversified into a home (lifestyle investment), I haven't had the problem of excess slippage - future problem I suspect.

However I believe that diversifying my capital across numerous trading systems (and other assets) can mitigate the risk.

TLDR - If portfolio size is starting to create slippage problems, the strategy has hit capacity and excess capital should be deployed elsewhere

 

[Skate]

When you say pyramiding , (a) do you mean increasing position size for next trade or (b) buying more of same trade at higher price?

@willoneau I've altered your question into two parts (a) & (b) = (a) is correct. (b) is incorrect.
I increase the size of the next series of bets averaged to have all my trading funds deployed in the markets.

There are 2 options to pyramid
1. Increase portfolio position size
2. Increase the bet size

Increasing the portfolio size
This method of pyramiding really needs no explanation as you add extra positions when funds become available.

"Pyramiding Explanation" (positionSize)
Pyramiding "PositionSize" is a re-balancing technique to reinvestment profits. "Pyramiding (re-balancing) my PositionSizes" ensures every "soldier is put into battle" to fight the good fight.

How?
Position-sizing uses the trading Bank balance to calculate the size of the next bet or series of bets. 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)

As I touched on strategy development - let's recap the "Megan Ratio"
The Megan ratio lets you evaluate different strategies, it gives you the ability to compare apples with apples when backtesting apples & oranges. "MEGAN" is an acronym which stands for the “Maximum Exponential Growth Annualized Notation” of the equity curve of a trading system, it’s a metric specifically designed to highlight the system that generates more returns per year when the profits are "reinvested" PositionSize Pyramiding regardless of the number of trades, holding period, drawdown, & so on. Pyramiding works for me. Others can research using the "Megan Ratio" if there are advantages of pyramiding using their style of trading.

I post my research hoping to alter the thinking of others
When I read the post below I was doing Cartwheels, whether I'm right or wrong doesn't matter, the way I elect to trade isn't important but to get others to think about the way they trade is priceless.

@WilsonFisk made the remarks:
(1) "it has made some good shifts in my thinking" &
(2) "This mammoth bible of info, has inspired me to code more systems".

Also - wanted to thank all contributors to this thread - it has made some good shifts in my thinking around developing future systems. I have found the index filter vs sentiment filter a really good read and my BBO Daily Strategy v4 will move from index to volatility filtering, with some pretty satisfying results (I hope). This mammoth bible of info, has inspired me to code more systems over the last 12 months, than I had done to date (out of many years investing and trading). Many of those systems suck, but it is a learning journey.

Skate.

 

[willoneau]

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)

If you have 20 positions on and close one with profits and Capital greater than 5 % of capital isn't there an issue with one position being a lot greater than the others?
I was thinking of adding profits to Capital and dividing by 20, being total position size and would be the size of the bet for the remaining position?

 

[qldfrog]

If you have 20 positions on and close one with profits and Capital greater than 5 % of capital isn't there an issue with one position being a lot greater than the others?
I was thinking of adding profits to Capital and dividing by 20, being total position size and would be the size of the bet for the remaining position?

it can also get the other way, you are fully invested then sell a loser: you lost 25% let's say from initial buy as initial amount per position...
your next buy has no other cash than that sale, which is under your expected amount per position, unless you top up with a cash buffer.
This is an issue which happens to me regularly and I sort it by just applying [inverse ]pyramiding;
position size =available cash/nb of available free slots.
Not backtested as optimum,just real world meeting theory
hope it helps

 

[willoneau]

it can also get the other way, you are fully invested then sell a loser: you lost 25% let's say from initial buy as initial amount per position...
your next buy has no other cash than that sale, which is under your expected amount per position, unless you top up with a cash buffer.
This is an issue which happens to me regularly and I sort it by just applying [inverse ]pyramiding;
position size =available cash/nb of available free slots.
Not backtested as optimum,just real world meeting theory
hope it helps

Hi qldfrog, If you lose 25% on one trade and only have one position to fill why would you use all of the Capital on one trade. Especially as a trend trader when the next trade can just as likely be a loss than a win.
I would think lower total Capital / 20 would be the Capital allocated to next trade?
I would use realized Capital not paper profits too.
Just noticed you mentioned 25% of initial trade Capital not total Capital.

 

[willoneau]

I can see your point , which gives me something to think about .

 

[willoneau]

If you have a windfall profit on one trade and have one position to fill do you use all that Capital on the next trade?

 

[qldfrog]

hum nice to think that way, currently yes but true 19 break even, one triple then that tripple winner is set as sell with one buy allowed, makes no sense to put 3x initial cash on that single bet
Probably a matter of using common sense and a rule of thumb

not very systemised...

 

[Skate]

Posting for the sake of posting.

I wanted to get something off my chest
Why did a massive day turn into a good day?

It's confirmed the market is irrational
Swings & roundabouts, it's hard to keep up. I've come to the conclusion that's it's usually too late to figure out what causes the prices to move & profit from it trading a weekly system. The markets can be very unpredictable even when using technical analysis as the guide. Trading is a constant competition with some of the smartest traders around & I'm starting to wonder what they are thinking at the moment.

Uncertainty
Most say: Trading the market is a rollercoaster of emotions & it's never been truer. The psychological forces at the moment is creating the uncertainty & the price fluctuations are testament to that. The only thing that I know about the market is that as technology becomes more advanced, traders will still keep trying to exploit the movement in price no matter what. I've been pondering that prices shouldn't shift as they do, well they didn't in the past that I can recollect, but then again we didn't have COVID.

Who really knows what the markets are going to do as most times nothing seems to make sense
The logical explanation would be that traders are very bullish or bearish at the moment & at the same time. I was starting to think the price follows market sentiment & now realise that sometimes, prices move in the opposite direction of the sentiment, go figure. I'm currently thinking that the market is moving on technical setups due to the massive number of algorithms that now control trading as "I have no other explanation".

Maybe the changes in price could still be due to “emotion”
I know emotion is a powerful driver of the markets & panic buying & selling can create massive inefficiencies but reasoning that goes into stock analysis is becoming less relevant (IMHO). But there is light at the end of the tunnel as overtime, prices generally recover back to where they originally started to fall & even continue to move up, thank god.

Skate.

 

[frugal.rock]

I came to a conclusion today that any old speccie stonk stock is a vehicle for the high frequency guys to do their thing with.
Seems like they just need a "catalyst" announcement for the next big thing "hysteria" creation.
It's definitely more pleasant to be stoically holding rather than frequently trading.