Position sizing optimizing software

[CamKawa]

Just reading Tharp's latest book and I notice on page 204 he uses a position sizing simulator. Tharp doesn't mention the name of the software he is using anywhere in his book. Does anyone know what it might be called?

 

[howardbandy]

Hi CamKawa --

According to what he says in the book and what I can find out, the software Dr Tharp uses for the examples in his book "The Definitive Guide to Position Sizing" is proprietary and not available.

The type of simulation Dr Tharp is describing is reordering of closed trades. This is a legitimate and valuable way to study the effect that taking the same trades in a different order might have on the results of a trading system.

There are alternatives available to all of us at little or no cost that will perform some of the same functions.

Equity Monaco. A free position size calculator / simulator published by TickQuest. It accepts a file, in ASCII format, of closed trade results, and performs Monte Carlo analysis of reordering the closed trades. Highly recommended.
http://www.tickquest.com/product/equitymonaco.html

Market Systems Analyzer. Costs about US$350, but sometimes available for a little less. Published by Adaptrade. Does everything Equity Monaco does, plus tests aggressive position sizing methods. I highly recommend this program -- provided you understand trading system development, trading system validation, account risk, trade risk, and aggressive position sizing, and you are not a novice trader. Using aggressive position sizing with a trading system that has not passed tests of statistical validation will result in a swift trip to bankruptcy.
http://www.adaptrade.com/

There are several program using the name TradeSim.

One from the University of Illinois that is no longer supported.
http://tradesim.agecon.uiuc.edu/

One from CompuVision that is an addon for MetaStock. This program performs simulations in a significantly different manner than than Dr Tharp's, Equity Monaco, or Market Systems Analyzer. Get current specifications from the website.
http://www.compuvision.com.au/

One from Trade Lab Strategies that is no longer supported, although it appears to be a live site. The program runs but is outdated. Do not buy it until / unless you have gotten in touch with the developer and received a current version of the program. (I could not get any response from them.) The web site has some valuable documentation. Read all the papers and get Larry Sanders' book in pdf format.
http://www.tradelabstrategies.com/customers/tradingstrategiesrev2.pdf
http://www.tradelabstrategies.com/

As you read Dr Tharp's book, be aware that his view on limiting the number of data points that will be used to compute the metric he refers to as System Quality Number is controversial (and, in my opinion, bad science). And some of his recommendations regarding the SQN values that trading system developers should be able to achieve are unrealistic. Search ASF using my name for threads related to this. Having said all that, Dr Tharp's book is well worth reading.

If you are thinking about using aggressive position sizing, read Ralph Vince's books. He has written at least five. The latest is "The Leverage Space Trading Model" and is highly recommended. If you read it and do not understand it, do not use aggressive position sizing.

Also read the paper "Monte-Carlo Evaluation of Trading Systems" by Dr. Timothy Masters (and anything else of his you can find). It is available here:
http://www.evidencebasedta.com/MonteDoc12.15.06.pdf

I hope this helps,
Thanks,
Howard

 

[CamKawa]

That's quite a comprehensive reply Howard thank you. I'll make way through those links over the coming days.

I'm looking forward to reading your next book when it comes out. Just hope you don't spend the first half of it banging on about God like Tharp does.

 

[howardbandy]

Hi CamKawa --

I am still writing my next book -- Advanced AmiBroker. Time to work on it gets competition from trading and my other projects (and posting to ASF). Some weeks I make good progress, other weeks none.

My other projects have been increasing lately. That is good for my bank account, but Advanced AmiBroker is getting less time than I would like it to.

There is no danger that any pages will be spent banging on about God. But I do cover risk, portfolios, position sizing, and the AmiBroker code needed to implement those.


Thanks,
Howard

 

[Superboot]

Same topic but slightly different question -

How do others manage position sizing of their trades?

I am still in the design and test phase of my system and using Amibroker. Running the backtester handles the position sizing for you. I have only just started to think about the next steps to implement a system.....

I am thinking the process goes something likes this:
1. Download EOD into amibroker (or similar)
2. Perform amibroker (or similar) scan
3. Identify and select trades for buy/sell
4. Use excel spreadsheet or similar (?) to determine position size
5. Enter trade

Am I on the right track, or out in space looking at the stars?

Cheers

 

[daveM]

Hi Howard.... This thread has aged well but some of the links have changed as has Amibroker. Does the current Amibroker allow for position sizing to a degree with the software mentioned in this post AND Are suitable methods to be covered in your soon to be released publications. I realize that these questions may be difficult to answer...... the motivation is that someone has offered a free dinner if his standards are met on a trading system and I am a hungry man. Thanks do much for your reply daveM

 

[howardbandy]

Hi Dave --

"Modeling Trading System Performance" is platform-free, not tied to AmiBroker, but usable with results from any trading system development platform, from a trade history created from actual trades, or from a hypothetical system.

Monte Carlo simulation is covered in some depth. I use Microsoft Excel along with mostly free, and some inexpensive, add-ins that allow the reader to not only duplicate what is in Dr. Tharp's book, but go a significant step beyond.

Some, but not all, of that can be implemented in AmiBroker, and will be in "Advanced AmiBroker" which will be out later.

But MTSP will be useful by itself. People who have seen early drafts think it will be a major contribution to trading system validation and management of trading systems as they are in live use.

A revised draft of the Introduction chapter will be posted by Sunday, January 16, (US time) and will give an idea of what the book will be like.

Writing is nearly complete, editing will take about two weeks, printing about six to eight weeks. The book has been registered with the US Library of Congress and the US Copyright Office. If things go well, copies should be available by May 1, 2011.

http://www.modelingtradingsystemperformance.com/

Comments are welcome.

Thanks,
Howard

 

[sasch]

Hi Howard,

Your book sounds interesting and I am looking forward to its publication. Is it possible to add a button to register interest via email on your website. That way when it is available we can be automatically notified?

Thanks Sasch

 

[CamKawa]

Hi Howard,

Your book sounds interesting and I am looking forward to its publication. Is it possible to add a button to register interest via email on your website. That way when it is available we can be automatically notified?

Thanks Sasch

I'd be interested in that as well.

 

[wombat40]

There is some good money management material at Stator ...and also a free position

sizer , similar to the one used in there portfolio management software..

 

[daveM]

We are all to keep in mind that Howard is wishing that we all do well..... he has even gone so far as to offer a dinner to someone that can come up with a system that meets his criteria... Thanks Howard for your replies

 

[daveM]

Hi Howard,

Your book sounds interesting and I am looking forward to its publication. Is it possible to add a button to register interest via email on your website. That way when it is available we can be automatically notified?

Thanks Sasch

I am pretty sure he will post in here when the book is ready.....

 

[howardbandy]

Greetings all --

My latest book, "Modeling Trading System Performance," is finished.

It focuses of several questions critical to trading:
1. How to tell whether a system is working or broken.
2. How to analyze the profit potential and risk of bankruptcy of a system.
3. How to apply position sizing to maximize profit while keeping drawdown to an acceptable level.

There is background material describing the application of Monte Carlo simulation to trading systems. A free MCS Excel add-in is provided and explained in detail so that every developer can run his or her own simulations.

You can learn about the book at its website:
http://www.modelingtradingsystemperformance.com/

There are several chapters that can be downloaded.

The book has been delivered by the printer to our inventory and will be shipped within one day of order.

Thanks,
Howard