Portfolio123 - View Thread - Position sizing

Home Ready-2-Go Portfolio Ranking Screener Stock ETF Tools Community Help

Forums Email User Polls Feature Requests Groups

Index | Recent Threads | Who's Online | User List | Search

Portfolio123 » List all forums » Forum: Testimonials » Thread: Position sizing

Thread Status: Normal
Total posts in this thread: 1

[Request a Feature] [Post new Thread]
[Add To My Favorites] [Watch this Thread]

Author

This topic has been viewed 2173 times and has 0 replies

dwpeters
Advanced Member

UNITED STATES
Joined: Feb 10, 2007
Posts: 659
Status: Offline

Position sizing

Reply to this Post
Reply with Quote

Hi,
In an earlier thread I discussed a method that I was using for position sizing. I wanted to pass along an update on this as I am going to discontinue using this method.

Since the summer I have been trading primarily a short term strategy, with a hold time of about 1 day to 1 week. In reviewing my results I found that while both the sims and portfolio are up over this time period, my actual account is about flat - and slippage has actually been in my favor, though I missed a few trades. In any case, in reviewing my performance by volatility, the most volatile stocks have performed worse then the less volatile stocks. This is exactly backwards from my prior experience with these types of trades, based on well over 100 trades, and more then anything I think this is accounting for my underperformance.

I have seen some apparent correlation between higher volatility and higher returns. I don't know if that has reversed because of the bear market or if there really was no connection. In any case I am going to err on the side of risk control by equalizing the positions, rather then trying to exploit an edge that has not been working.

I am going back to a more standard position sizing algorithm:

(Current Balance * Target allocation * (Average volatility/stock volatility))/stock price

So for example:
With a trading account current balance of $10000, target allocation = 10% of account (10 stocks), average volatility of my last 50 stock purchases = 6% and volatility of the stock I am about to purchase = 9% and stock price of $5 gives:

10000*.1*(.06/.09)/5 = 133.3

So I would trade 133 shares at $5 = $665. which could be considered equivalent to trading $1000 of a stock with average volatility. Trading this stock as a straight 10% allocation the way P123 ports and sims would, could be considered equivalent to trading $1500 of a stock with average volatility.

FYI, What I was previously using:

(Current Balance * Target allocation * SQRT(Average volatility/stock volatility))/stock price

So for example:
With a trading account current balance of $10000, target allocation = 10% of account (10 stocks), average volatility of my last 50 stock purchases = 6% and volatility of the stock I am about to purchase = 9% and stock price of $5 gives:

10000*.1*SQRT(.06/.09)/5 = 163.3

So I would trade 163 shares at $5 = $815. which could be considered equivalent to trading $1222 of a stock with average volatility. Trading this stock as a straight 10% allocation the way P123 ports and sims would, could be considered equivalent to trading $1500 of a stock with average volatility.

I'm interested in how others determine position size. Default from P123 or equal volatility?

Don

[Dec 29, 2008 9:28:18 PM]

[Link]

[Show Thread Printable Version] [Post new Thread]

Free Trial / Log In