Constant risk as % of account

Discussions about Money Management and Risk Control.
Post Reply
danZman
Roundtable Knight
Roundtable Knight
Posts: 117
Joined: Thu Mar 10, 2005 10:07 am
Location: Newport Beach,CA

Constant risk as % of account

Post by danZman » Thu Dec 04, 2008 8:14 am

I was thinking about trend-following systems and how the number
of contracts are determined by the initial risk. Seems to me that
this is fine, but what if you enter a position when the ATR is at
an extreme? If the trend lasts a long time, this volatility at the
start of the trade affects the life of the entire trade.

Maybe a better way to trade is to actively manage a position.

Say you use a Donchian-type system and fixed fractional MM.
As the distance to the stop decreases, one could add more
contracts. Conversely, one could decrease the number of
contracts as the stop widens (if volatility increases quickly,
you're probably getting stopped out anyway).

Think of it this way, if you got in a long-term trend when
volatility was high, you could end up making less than
the guy that got in when volatility was low...even though
he's using the same system and it was at a LATER date.

I'll code this eventually. Got too much on my plate. I'm
sure this is being done though. I just don't recall a
discussion about it.

For smaller accounts, some type of quantum must be
used or else commissions and slippage would probably
get out of hand.

D

Chris67
Roundtable Knight
Roundtable Knight
Posts: 1046
Joined: Tue Dec 16, 2003 2:12 pm
Location: London

Post by Chris67 » Thu Dec 04, 2008 12:20 pm

Dan
Great Minds !!!! (not that it classifies me) I've been thinking exactly the same for the last couple of days
Problem I have is not time - I have some on my plate - Its my programming skills - although I am at last starting to write some blox etc -
What I want is a blox that simply enables more choice of stop loss per system - say you use the triple m.a. system - at present you have 2 choices for stop - why not have 5 for example including no. of days low
Im starting to have a go at coding and will put some here when done
I think its daft that if you have a system that for example is a breakout with an x-day low (10 days for example) that the ATR stop is below the last 10 days ! In some ways if the volatility is high then its difficult to see this situation developing but it does happen - I recently had an entry in JGB's where the ATR stop was many days below the breakout stop ?
I'll look at some coding and I guess anyone else who wants to can join in also !
C

danZman
Roundtable Knight
Roundtable Knight
Posts: 117
Joined: Thu Mar 10, 2005 10:07 am
Location: Newport Beach,CA

Post by danZman » Thu Dec 04, 2008 4:19 pm

Actually, I shouldn't have said anything about ATR. On a simple
system where the stops only move in the direction of the trend,
this idea could work as I was thinking...but don't let that stop you.

D

babelproofreader
Roundtable Knight
Roundtable Knight
Posts: 138
Joined: Wed Nov 10, 2004 4:36 pm

Post by babelproofreader » Fri Dec 05, 2008 4:01 pm

You could try scaling into/out of a position using a volatility position sizing algorithm that keeps open risk at some proportion of volatility.

Adrian77
Full Member
Full Member
Posts: 12
Joined: Mon Nov 19, 2007 7:19 pm
Location: Sydney

Post by Adrian77 » Tue Mar 10, 2009 12:42 am

Another alternative to consider (if you are trading very long term TF) might be to exit / resize the position every X days. For example, say you enter long on an 80 day breakout and exit on a 80 day low...every 50 days you could close the position, reenter at the next 80 day high breakout with a position size calculated according to the volatility at the time (and place a new initial stop loss). You would then exit the position if the new 'initial' stop loss was triggered or if you hit an 80 day low.

This would allow you to adjust the position size for each winning trade as the trade progresses - reduce exposure as volatility increases or increase exposure if volatility decreases. I have found this sort of approach can smooth the equity curve (in some instances) and reduce the profit give back at the end of the trend.

Post Reply