Position Size

[t2werik]

I'm working on a strategy that needs a position size element to it. It's an opening strategy that I'm hoping to hedge my overall market risk with and then close the whole position out at the end of the day. Most portfolio stuff is based on stop prices and how much money I'm willing to lose on a single trade but I more just want a position size based on volatility on an individual stock basis. Let's say I'm willing to risk 20,000 dollars on every opening order.

Let's say the stock "A" which has an ATR of .80 and a historical volatility of 33.36%.

I don't want to do something like the pre close was 36.26 so I'll take 20,000/36.26 so I'll do 552 shares.

I would like to adjust it based on some type of volatility indicator instead of 20000/the previous close.

Thanks for your help.

Erik

 

[Trader333]

Erik,

You say an ATR of 0.80 but not over what time period ? So is it 14 or 10 etc ?

Also when you say an historical volatility of 33.36% can you expand on this ?


Paul

 

[t2werik]

I was thinking of using a 10 day HV or a 14 day ATR? It could be anything but I'm looking to open positions on the openings and closing positions on the closes no matter how bad the position goes against me. Everything out there is use a static number or use ATR based on how much you're willing to lose. I more want to balance my portfolio based on volatility of the individual stock and not place such a big bet on something that could go really against me and not follow what I think it should based on my levels. Does that make sense?

 

[fibonelli]

Erik,

The volatility and ATR are not cast in stone. You need to be very careful as the figures for historic volatility and ATR may be very low, low, average, high or very high when you compare the present to the past.

Have a look at "The Turtle Trading System" rules.
http://www.trade2win.com/boards/showthread.php?t=25361&highlight=turtle+trader

F

 

[t2werik]

I think the dollars per point screw up the turtle math when it comes to trading equities. You multiply the ATR X 1 dollar and it kind of screws up the math. Let's say for instance my example:

.02*10,000,000 / .08*1

20000/.08 = 1600 shares. That's not right. Maybe my dollars per point should be something else. For equities it is 1 dollar per share.

If I was doing 20,000/36.26=552 shares.

I don't want to do 3X the volume.

I've taken a look at this and maybe there's some way to modify this for equities.

I appreciate the replies guys. I've been a lurker for a long time and I appreciate all the help you guys have given me over the years.

 

[alexander]

I think the dollars per point screw up the turtle math when it comes to trading equities. You multiply the ATR X 1 dollar and it kind of screws up the math. Let's say for instance my example:

.02*10,000,000 / .08*1

20000/.08 = 1600 shares. That's not right.

Of course it's not right because you missed a "0".

.02*10,000,000 = 200,000 not 20,000

But you have to make up your mind, nevertheless, what effective role the ATR plays. If it plays the effective role of a stop-loss, then you must also divide by the price as in:

.02*10,000,000/.08/36.26 ~ 68,300 shares

You can use 3 x ATR to reduce this to: ~22,800 shares

Then, you can reduce your risk to 0.01 to make this ~ 11,400 shares

If you do not like this maybe you can take a look at the Kelly formula. Read the article "Relation of Expected Gain to Kelly Formula" at this following link:

http://www.tradingpatterns.com/About_Us/articles/articles.html

Alex

 

[nchosen]

Of course it's not right because you missed a "0".

.02*10,000,000 = 200,000 not 20,000

But you have to make up your mind, nevertheless, what effective role the ATR plays. If it plays the effective role of a stop-loss, then you must also divide by the price as in:

.02*10,000,000/.08/36.26 ~ 68,300 shares

You can use 3 x ATR to reduce this to: ~22,800 shares

Then, you can reduce your risk to 0.01 to make this ~ 11,400 shares

If you do not like this maybe you can take a look at the Kelly formula. Read the article "Relation of Expected Gain to Kelly Formula" at this following link:

Tradingpatterns.com Michael Harris article

Alex

What would be the correct (Turtle) unit size for leveraged products such as Forex etc. ?

Leverage 1:10, initial deposit $100.000, N=0.012679

Calculated with leveraged account:
.01'*$1.000.000/0.012679*$100.000=7,88 units (7 std units)

or

Calculated with initial deposit
.01*$100.000/0.012679*100.000=0,788 units (7 mini units)

Thanks.

Nchosen

 

[alexander]

I think you must always calculate your risk on your bankroll rather than on leveraged amount. Equivalently, you can use the leveraged amount but divide your risk by the leverage factor, in this case 0.01/10

Alex

What would be the correct (Turtle) unit size for leveraged products such as Forex etc. ?

Leverage 1:10, initial deposit $100.000, N=0.012679

Calculated with leveraged account:
.01'*$1.000.000/0.012679*$100.000=7,88 units (7 std units)

or

Calculated with initial deposit
.01*$100.000/0.012679*100.000=0,788 units (7 mini units)

Thanks.

Nchosen