Dear Forum Mgmnt,
On running some tests I found intriguing variations in abs returns which I am hoping you can help me resolve.
When testing a set of stocks running them on their indiv best entry and exit, the sum of returns on all these stocks is less than half the return when I run the same set of stocks as a portfolio using the best entry exit for that portfolio. I have put the stocks in descending order of returns in the portfolio.
Please help me understand the huge difference.
Sapna
Portfolio vs. Market Returns
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Forum Mgmnt
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Sapna,
I don't have anywhere near enough information to answer this question with any certainty since I don't know what you are using to test with.
My suspicion, despite this lack of information, is that you are looking at a compounding benefit of the increased number of trades made possible by a portfolio. In essence, each trade compounds or increases the gains of the previous trades of the other markets. Depending on the particular characteristics of the sytsem, this effect can be quite dramatic.
Single markets suffer from not using that much of the available cash because there are limited trading opportunities. With stocks one can use much more of the available trading equity which results in greater compounding over time even if the invidual trades are marginally less profitable.
Give me more specifics and I'll try to give you a more complete answer.
How many trades are there?
How many years are you testing?
How many markets?
What percentage of the money is allocated per market?
When running a portfolio test, how do you decide which markets to take when you run out of money?
P.S. I split this into a new topic since it didn't appear to me to have anything to do with the question that TradingCoach asked.
I don't have anywhere near enough information to answer this question with any certainty since I don't know what you are using to test with.
My suspicion, despite this lack of information, is that you are looking at a compounding benefit of the increased number of trades made possible by a portfolio. In essence, each trade compounds or increases the gains of the previous trades of the other markets. Depending on the particular characteristics of the sytsem, this effect can be quite dramatic.
Single markets suffer from not using that much of the available cash because there are limited trading opportunities. With stocks one can use much more of the available trading equity which results in greater compounding over time even if the invidual trades are marginally less profitable.
Give me more specifics and I'll try to give you a more complete answer.
How many trades are there?
How many years are you testing?
How many markets?
What percentage of the money is allocated per market?
When running a portfolio test, how do you decide which markets to take when you run out of money?
P.S. I split this into a new topic since it didn't appear to me to have anything to do with the question that TradingCoach asked.