Portfolio limit

[nizar]

Hi tech and others proficient in systems testing and design,

Do you put a portfolio limit in terms of the maximum % that can be allocated to one stock?

If yes -- what do you do when the a stock reaches this?

Eg. if this is set to 30%, and your allocations per trade is $10k out of $100k initial capital, you invest only one parcel into this absolute winner, and it runs like a champion, and triples, what would you do then?

(Obviously, if you pyramid this scenario will come up more often that if you dont)

So -- If you chop some -- how much do you chop?

And for those who dont include such a portfolio limit, is it because you dont want to cap your winners? I would think so.

Responses and discussion would be much appreciated.

 

[Julia]

And for those who dont include such a portfolio limit, is it because you dont want to cap your winners? I would think so.

Yes. But I have also come unstuck doing this.

 

[tech/a]

Nizar.

Portfolio limit is the total amount of capital which can or is to be allocated in your portfolio at any one time. I always set this to 100%. I want all my money working for me.

Position size limit The maximum amount you will trade on any one position. This I vary. My standard method is 10% of capital.
I traded one (Closed all long term positions on 27th) at 14.5% of capital.
I find with longer term systems more on each trade to 20% is better than less. Lower win rate higer R/R.
With short term----high win rate less /trade.

Portfolio heat The total amount of risk you'll allow your total capital to be at risk relative to open positions in your portfolio.
I limit this to 20% but run it at 100% to see how exposed a system "Could" take me to if I didnt limit it. Most are around 20%.

Davids done a tremendous job with the manual dont you think.
Worth the $1500 on its own I think! I printed/print the whole manual off and bind it for easy reference.

 

[MS+Tradesim]

And for those who dont include such a portfolio limit, is it because you dont want to cap your winners? I would think so..

Yes. Although I haven't had the bad luck to come unstuck doing this.

At the moment I only have 4 stocks (never more than 12-15). One has run really well and now accounts for about 80%. I also don't scale in or out of trades. The initial parcel is it. But that's just my system.

 

[nizar]

Davids done a tremendous job with the manual dont you think.
Worth the $1500 on its own I think! I printed/print the whole manual off and bind it for easy reference.

Yeh tend to agree wholly.
Its a great reference to have. I've binded mine as well -- $6 from officeworks, lol.

I wonder how Davids system has performed the last few years!

I was reading the manual yesterday and on pg.246 theres a monte carlo analysis done on a MACD system with the entry and exit signals reversed, and the results were AMAZING. Interesting to see how much it pays to go against the herd.

 

[karmatik]

Pardon my ignorance, but who is David? Can you post a link to his site?

 

[tech/a]

David Samboursky

Developer and designer of TRADESIM.

http://compuvision.com.au/

 

[theasxgorilla]

Portfolio heat The total amount of risk you'll allow your total capital to be at risk relative to open positions in your portfolio.
I limit this to 20% but run it at 100% to see how exposed a system "Could" take me to if I didnt limit it. Most are around 20%.

Could you guestimate double that for a max DD situation? All positions move against so OE drops 20%, then max consecutive losers x risk per trade...another 20%....max DD potential 40%?

 

[tech/a]

ASX

Max D/D and portfolio heat are very different.
DD can be well over 20% while Heat remains under 20%.
DD is based on that increasing and decreasing variable of profit---while Heat is based on CAPITAL risk to the portfolio.