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HWG
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Novice Question

Post by HWG »

I was lucky enough to find a mentor who has worked at some pretty well known places in the world of systematic futures trading.

He was going over some of my test results and giving me feedback.

One of the things he was concerned with is that I'm using a fixed fractional position sizer and my risk per trade is 2%. I'm testing 66 different instruments and thus if I am fully positioned I'm risking 132%!

Obviously not ideal and I couldn't find too much wrong with his logic so I'm wondering how to respond and/or change my method. What I'm using has no stops but enters/exits the market based on an indicator crossing a threshold.

I've toyed with different risk managers but since I have no stops having a hard time quantifying how to limit risk and find maximum exposure that fits better.

Appreciate any comments.
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Post by wguan »

IMO, to keep a cap on risk, I'd suggest you target some sort of volatility. Scaling out when some threshold is breached would be a good idea.

Volatility can be position value wise or anything your creative mind can come up with. I'd browse through the forum as there are lots of ideas.

good luck
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Post by LeviF »

Do you really have 132% risk when fully loaded? I assume you are risking 2% based on volatility, what is your avg losing trade in %?
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Post by Moto moto »

Sector limits maybe --- do you have a limit on highly correlated markets - even its as simple as in the grains sector, the precious metals sector, the equity market sector - i only have max two positions open?

eg; you can only be long the Dow and the Dax but not the dow, the dax and the FTSE

However if everything has to be open as its always in the market system then why not just reduce a proportion of the two already open as longs as a third is opened in the same direction that is correlated (or in the same sector) (as everything seems correlated these days).
If all three are triggered the same day then just reduce the individual amounts to ensure a consistent sector risk......see if that makes a difference to the numbers
HWG
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Post by HWG »

LeviF wrote:Do you really have 132% risk when fully loaded? I assume you are risking 2% based on volatility, what is your avg losing trade in %?
True, it's volatility weighted but if so and I'm risking 2% on each trade and say I'm in 66 positions that's .02 x 66 = 132% of equity or am I missing something.

The test results I'm comfortable with but when this guy brings up that point its a bit eye opening. My avg losing trade is only 1.37% (winners a shade under 5%)

Considering his extensive experience he basically said my return/risk was in his words, "not commercially viable" although that's not necessarily what I was going for but interesting to know. Mar ratio is about .99 which is less than I hoped but # of variables is low and has been tested over nearly 30 yrs of data.

Basically I have no correlation risk manager or max units in there.
LeviF
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Post by LeviF »

Perhaps you should decide how much portfolio risk you are willing to accept and design a system around that.
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Post by trackstar »

What testing platform are you using that doesnt have a maximum allowed risk as a percent of equity?

What isnt commercially viable about winning 3.64:1?
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Post by LeviF »

When using volatility weighted risk %, pay attention to the actual place you will exit, that is a better estimate of your instrument risk. That is why I asked about your avg losing trade %. Depending on your exit point, your risk could be 0.25% or 25%...
HWG
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Post by HWG »

trackstar wrote:What testing platform are you using that doesnt have a maximum allowed risk as a percent of equity?

What isnt commercially viable about winning 3.64:1?
I'm using Trading Blox but must be missing something on max allowed risk as a % of equity.

Ha, yeah the win/loss ratio is good in that terms but he doesn't seem to think investor would be sticking around for the drawdowns I'm seeing nor does he think I would be able to stomach the same as the trader.
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Post by trackstar »

I'm fairly certain Trading Blox has the capabilities to limit total portfolio risk.
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Post by sluggo »

A quick search on the Trader's Roundtable found this image, in the "Blox Marketplace" section.
(I added the Red annotations myself, for this reply. They weren't in the original).

Image
HWG
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Post by HWG »

sluggo wrote:A quick search on the Trader's Roundtable found this image, in the "Blox Marketplace" section.
(I added the Red annotations myself, for this reply. They weren't in the original).

Image
Thanks Sluggo, I actually have toyed around with that block before. I actually just ran a test and stepped the Risk Manager values but am getting the same results for every test. Basically the RM is not being recognized.

Any thoughts?
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Post by LeviF »

These wont work if you dont calculate stops. You will need to get a bit more creative.
HWG
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Post by HWG »

LeviF wrote:These wont work if you dont calculate stops. You will need to get a bit more creative.
That's what I figured. Thanks!
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Post by Roger Rines »

Consider using a position count limiter to limit the number of positions, which will limit the max account loading when using market orders, and something less with Stop and Limit execution orders.

With fixed rate sizing, and with a max account loading rate goal you won't want to exceed, you can easily determine how many positions to allow.

When limiting positions using a Max Rate, or a Max Count process, and the sequence of instruments is left unchanged throughout the simulation, the symbols arriving earlier will be given an opportunity to trade more often over the symbols arriving later.

If none of the above sounds interesting, reduce the fixed rate until it achieves your max account loading goal. This last approach will favor orders with a lower risk rate, which tends to be restrictive to some symbols.
HWG
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Post by HWG »

Roger Rines wrote:Consider using a position count limiter to limit the number of positions, which will limit the max account loading when using market orders, and something less with Stop and Limit execution orders.

With fixed rate sizing, and with a max account loading rate goal you won't want to exceed, you can easily determine how many positions to allow.

When limiting positions using a Max Rate, or a Max Count process, and the sequence of instruments is left unchanged throughout the simulation, the symbols arriving earlier will be given an opportunity to trade more often over the symbols arriving later.

If none of the above sounds interesting, reduce the fixed rate until it achieves your max account loading goal. This last approach will favor orders with a lower risk rate, which tends to be restrictive to some symbols.
Is there anything like this in Blox Marketplace? I wasn't able to find it if it was. I tried Unit Limiter but it wasn't working either. Any reason for that? I looked through the coding and didn't notice that stops were necessary for the correlated unit limiter.
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Post by Roger Rines »

HWG wrote:[snip]
Is there anything like this in Blox Marketplace?
I took some time tonight to look and couldn't find anything that would work with orders that don't have stops. It was the "No Protective Exit Stop" comment that motivated the comments to use a position counter.
HWG wrote:[snip]
I tried Unit Limiter but it wasn't working either. Any reason for that? I looked through the coding and didn't notice that stops were necessary for the correlated unit limiter.
I just looked at the code in the Unit Limiter and it is focused on filtering based upon Segment or Market classification. Protective exits are not used this module.

This isn't the type of module that will count and limit positions. Position count limiters are not hard to create, and they can help you limit how much exposure you allow. They can also be used to ensure you don't exceed a Stock/ETF account where Margin agreements are not allowed.

Limiting positions for market type orders is more predictable because market orders have a reliable fill. Order executions that use On_Stop or On_Limit orders don't have a predictable fill so they are less reliable to achieve a predictable active position count.

Without a position count limiter, the only other option I can think of is to limit the size of the portfolio.
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