The idea is so simplistic that it's easy to overlook; easy to dismiss. But you may find it is also powerfully liberating:
- Don't give each trading system an allocation of money. Give each trading system a VOTE
- Step 1. Run the software code of each of the N=60 trading systems. Count up how many systems are long today (#L) and how many are short today (#S)
Step 2. Calculate the Consensus Oscillator, CO = (#L - #S) / N
Step 3. If (not long) and CO > thresh1, enter long. If (not short) and CO < thresh2, enter short.
Step 4. If long and CO < thresh3, exit long. If short and CO > thresh4, exit short.
Step 5. Profit!
Extending the idea to portfolio trading with M>1 markets is pretty simple. For each market in the portfolio, calculate the Consensus Oscillator (by counting up the positions of each of the N systems). Then, for each market, go long or short or flat as dictated by that market's Consensus Oscillator reading. Easy.
Many people will want their Short trading rules to be perfect mirror images their Long trading rules; so they will choose thresh2 = (minus thresh1) and thresh4 = (minus thresh3). For example:
- Enter Long if CO > +5%
Enter Short if CO < -5%
Exit Long if CO < -1%
Exit Short if CO > +1%
Art Collins and Steve Hunter suggest that you add up, not the systems' positions as of todays Close, but rather (what the systems' positions WILL BE, 5 seconds after tomorrows Open). If a system is flat tonight but will enter short on tomorrow's open, don't count it as "flat"; instead, count it as "will be short" and increment #S. Makes sense.
This idea is especially useful for money managers who want to trade in an extremely diversified fashion, but at the same time, offer a small minimum account size. In a $250K account, they could trade 200 systems on 40 markets and get quite a lot of diversification. Lovely.
Your programmer will probably have an easy time implementing this concept in Trading Blox. She will probably use a Global Suite System as a mechanism for implementing a master/slave arrangement between the individual trading systems and the Consensus Oscillator. Test scoped Instrument Permanent Variables will cumulate the #L, #S, and CO values. Boom, done, wallah.
She can even implement a randomization / subset concept to perform Monte Carlo simulation experiments upon your ensemble of trading systems: What if you have N=200 total systems, but you only count the votes of a randomly chosen subset of 100 systems? How much does performance improve or degrade? (link to inspiration) What is the variance of performance when you choose large numbers of random subsets?
It will be interesting to see whether this idea begins to leak into the blogosphere, with or without attribution, and if so, how soon.