OPEN BETA: 'Formula Weight' Position Sizing Method

The ‘Formula Weight’ position sizing method is now in open beta.
This version can only be used for backtesting. Give it a try here.

I experimented with it a little and I really think this will be a game-changer. Changing an equal-weight strategy to value-weighting or some other formula-weighting is big.

I know its beta backtesting but the parameters seem to reset themselves everytime you run it. Maybe you meant it that way for testing though.

Took a look. Will it be limited to just one factor? I was hoping it would be more of a matrix. Plus I’d kill to control my buy position weightings, and cash position, in Sims/Ports

Thank you!

It looks like a lot of thought went into this. That means, I think, that a lot of different things can be done with it. Starting with the much requested getting rid of buy/sell difference-or controlling it so that it does not recommend trivial adjustments. But much more I think.

Just beginning to explore what can be done.

-Jim

Yeah, noticed that, plus my buy and sell rules keep disappearing on every run.

Bear in mind the factor can be RANK or RATING(“…”), so the factor can be as simple or as complex as you’d like.

As long as this has been released for open Beta use, I may as well make two drafts of two related items available too:

One is a pending addition to the Tutorials that focuses on this.

The other is a pending addition to the Virtual Strategy Design class that focuses on weighting.

Bear in mind final versions will be forthcoming when capability moves to the regular test, but for now, these may help you work with the beta.


Dynamic Position Sizing on Portfolio123.pdf (391 KB)


Topic 9 - Position Sizing - Weighting.pdf (2.45 MB)

Help!
I tried the beta weighting and my simulation is now all screwed up / reset on the main server!

https://www.portfolio123.com/port_summary.jsp?portid=1498386

Can you restore this simulation please?

You should make a warning that if you play with this in the beta, it will affect in the live version.


My question:

This may be a dumb question but how do I choose equal weight rebalancing? Not just at the start as it always been the case but at each rebalancing? For example if I have 25 stocks I want them to be rebalanced to 4% each quarter.

Thanks!

I do not find this super easy or trivial. Which, I think, means that a lot of different things can be done with a little thought.

But in any case, if you are like me it took a little while to figure out how to do a “weight formula.”

For a five stock model—to vary position size around 20%–it is easy to start with 23 - RatingPos. Or if you want a larger increment 26-2*RatingPos etc

-Jim

I sent the first issue you raised to the developer, but as to this question, use % Portfolio weight and set “yes” to the choice to allow sold holdings to be repurchased at rebalance, and then have a sell rule like rank<101 which will sell everything. At the end of the day, this will trigger a Buy/Sell Diff. transaction that tells you how much to by or sell to restore it to equal weight. And of course, new;y purchased positions wiill have that same equal weighting.

Marc -

The PDFs you provided are terrifically helpful, and I’m extremely enthusiastic about this project. I’m looking forward to trying out the beta version this weekend.

I have a looking-forward question. How will this affect designer models? Will formula weighting work for those? How will the weekly rebalance notices take account of it?

Thanks,

  • Yuval

Oh yeah! :slight_smile: Check the PDFs I attached to one of my posts here, one of which is a draft of an addition to the virtual strategy design class.

I’m the one who initiated the project, and even I had a learning curve when I first started testing the implementation. And I expect I’ll be learning new things for a long time. For example . . .

OK. I never thought of that. I hadn’t even figured how this might work for 5-position portfolios. I assume you folks will come up with countless things I hadn’t thought of. And that’s exactly why the interface was designed as it was . . . to empower users to get creative. (It certainly could have been simpler, but I know you’d have hated being handcuffed.)

Yes, this capability will be usable in designer models. In terms of work flow (converting a sim to a designer model and then investing based on it), there is no change. When trading signals tell you how much to buy and sell, they’ll take account of getting the stock to the correct weight . . . the one change will be in designing the model. Pay attention to the difference between reconstituting (re-running the model and replacing whatever stocks need to be sold) and rebalancing (which can operate on hold-posiitons only and do nothing more than adjust holdings to restore them to appropriate weights). These can occur together or they can be done. But once you finished making all of your decision (including those relating to weights), then all things proceed as they did.

We have addressed the bug causing buy, sell, & hedge rules, as well as stop loss settings and restriction list to not be loaded from the database (effectively letting the user easily overwrite these settings with nothing). We’re investigating which of 22 models may have been affected and will determine what needs to be done. Since the bug has been patched, you don’t have to worry about this exact issue happening again, but you may still want to make a copy of pre-existing models before testing them on the new server.

As an aside:
Since position weights are evaluated after buy/sell rules, the following items are prohibited therein when using Formula Weight:
[]BuyAmount[]CapWeight[]CashPct[]IndWeight[]LargeWeight[]MicroWeight
[]MidWeight[]PctAvgDailyTot[]PortCash[]SecWeight[]SmallWeightFor those looking to have a little more control over diversification, please try these new factors out:
[
]CapCount[]IndCount[]LargeCount[]MicroCount[]MidCount[]SecCount[]SmallCountThese new factors will be supported for all sizing methods and will be documented after this new feature is live.

What do the “XCount” functions do?

They work the same way as their parallel XWeight factors, but instead tell you the number of positions in X plus the stock being evaluated.

Hopefully you can reverse it to lets say midnight ?

I’ve reverted you rules to as they were yesterday at 3 AM. If something’s still missing, we’ll have to recover it from this morning’s backup.
To answer your earlier question, equal weight is easy. Feed in a weight formula of [font=courier new]1[/font] to see it in action.

Can the formula weight be extended to Book as well?
Thanks

For me, most have clear cross-sectional meaning except CapCount. What is that counting?

Walter