When should I rebalance my portifolio?

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oem7110
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When should I rebalance my portifolio?

Post by oem7110 » Mon Mar 17, 2014 9:54 am

I have used indicators on daily charts as buy and sell signals on different market, and would like to know how often I should rebalance my portifolio.

For example, there are 4 stocks on my portifolio,
A: 35% (Ideal)
B: 25% (Ideal)
C: 20% (Ideal)
D: 20% (Ideal)

Case 1
After 2 days, if the signals on holding positions do not change, but prices are changed
A: 40% >> 35%
B: 15% >> 25%
C: 25% >> 20%
D: 20% no change

Should I rebalance my portifolio?

Case 2
After 2 days, if the signals on holding positions change, C should be removed.
A: 40% >> 35%/(35% + 25% + 20%) = 44%
B: 15% >> 25%/(35% + 25% + 20%) = 31%
C: 25% >> 0%
D: 20% >> 20%/(35% + 25% + 20%) = 25%

Should I rebalance my portifolio?

Does anyone have any suggestions?

Thanks in advance for any suggestions :>

sluggo
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Post by sluggo » Mon Mar 17, 2014 11:26 pm

I would program my trading system into a backtesting software program and then look at the historical results.

oem7110
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Post by oem7110 » Tue Mar 18, 2014 12:12 am

sluggo wrote:I would program my trading system into a backtesting software program and then look at the historical results.
When you talk about backtesting, the today result from backtesting would be different from last week historical result, so how do you look at backtesting? that is the main questions, and is similar to this question on when to rebalance your portifolio.


Do you have any suggestions?

Thank you very much for any suggestions :>

oem7110
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Post by oem7110 » Mon Mar 31, 2014 1:55 am

sluggo wrote:I would program my trading system into a backtesting software program and then look at the historical results.
For example, there are 4 stocks on my portifolio,
A: 35% (Ideal)
B: 25% (Ideal)
C: 20% (Ideal)
D: 20% (Ideal)

On 25 Mar, 2014, would you adjust the ratio back to ideal one?
A: 34%
B: 26%
C: 23%
D: 17%

On 31 Mar, 2014, would you adjust the ratio back to ideal one?
A: 37%
B: 23%
C: 21%
D: 19%

Does anyone have any suggestions?

Thanks in advance for any suggestions :>

Jake Carriker
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Post by Jake Carriker » Mon Mar 31, 2014 8:49 am

This is the type of question Sluggo suggested might be answered best by historical simulation. You could find that there is an optimal rebalance frequency that is at an intersection of the benefit gained by maintaining the desired allocation and the cost of trading to that allocation. The existence and location of such an intersection are functions of how much it costs to trade (in both commissions and market impact), how the strategy performs under an optimal allocation, the sensitivity of the strategy to holding non-optimal allocations, etc. Historical simulation is one way to find an answer to questions like these that might be difficult to gain insight into otherwise.
When you talk about backtesting, the today result from backtesting would be different from last week historical result, so how do you look at backtesting? that is the main questions, and is similar to this question on when to rebalance your portifolio.
Backtesting is a tool to help answer the question, "What would have happened if...?" It is no guarantee that the insights revealed by answering this question will be valid going forward, but it is an improvement over having no information about the historical performance of implementing various trading policies.

oem7110
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Post by oem7110 » Mon Mar 31, 2014 1:09 pm

Jake Carriker wrote:Backtesting is a tool to help answer the question, "What would have happened if...?" It is no guarantee that the insights revealed by answering this question will be valid going forward, but it is an improvement over having no information about the historical performance of implementing various trading policies.
Backtest is not the answer for this question, such as

I would like to go ABC shopping mall,
[Me] do you know which direction I should go?
[You] Since Earth is round, you can test all directories from here [backtest], then you would find your way to get there.
[Me] Thanks you

Do you have any suggestions?

Thank you very much for any suggestions :>

fab1usa1
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Post by fab1usa1 » Mon Mar 31, 2014 5:06 pm

Yes, go in ALL directions. Your backtest results will tell you which direction was the most profitable or least painful, or, or, or... whatever metric is important to you!

sluggo
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Post by sluggo » Tue Apr 01, 2014 9:09 pm

fab1usa1 wrote:Yes, go in ALL directions. Your backtest results will tell you which direction was the most profitable or least painful, or, or, or... whatever metric is important to you!
In my opinion it's okay to sort the ideas-to-be-tested beforehand.

In my opinion it's okay to try the ideas which seem the most promising TO YOU, first. Then, when they trounce the next four, or the next forty-four, or the next four hundred ideas-to-be-tested, you can pump your fist triumphantly and say I KNEW IT!

fab1usa1
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Post by fab1usa1 » Tue Apr 01, 2014 9:28 pm

Yes, I agree sluggo. My concern is that oem is looking to us for the solution rather than achieving it on his own.

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