cassiopeia
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There have been very few strategies discussed on this board since it moved from TMF.
For some time I have been toying with the possibility of using pyramiding as a means to increase the return/drawdown ratio of a strategy. My particular definition of pyramiding is that for every increment the security increases in price you buy another unit and if it decreases by a unit you close the whole position, obviously it works in reverse for shorting. Compared with a strategy of using a simple moving stop (buy just 1 unit to open when the instrument increases by an increment from its lowest point, sell the unit when it decreases an increment from its highest point) you get the following comparison table of profits
Profit from Profit from
Moving stop(MS) Pyramiding (P)
-1 -1
0 -1
1 0
2 2
3 5
4 9
5 14
6 20
7 27
8 35
9 44
10 54
The equation is P=(MS)^2/2+((MS)-2)/2
This ignores commissions and spread which should be subtracted from these figures. Obviously the exposure is far greater with pyramiding than a normal moving stop and it may be wise to close the position at the end of day if short term trading. For many strategies this seems to reduce the return/drawdown ratio which to me is the same as the risk element.
I was wondering if anyone had considered used a pyramiding element in their methodology and how this affects the return/drawdown. Another potential advantage is that it seems to automatically increase exposure during trends when most is needed. However, it seems to work well with some securities but not others.
For some time I have been toying with the possibility of using pyramiding as a means to increase the return/drawdown ratio of a strategy. My particular definition of pyramiding is that for every increment the security increases in price you buy another unit and if it decreases by a unit you close the whole position, obviously it works in reverse for shorting. Compared with a strategy of using a simple moving stop (buy just 1 unit to open when the instrument increases by an increment from its lowest point, sell the unit when it decreases an increment from its highest point) you get the following comparison table of profits
Profit from Profit from
Moving stop(MS) Pyramiding (P)
-1 -1
0 -1
1 0
2 2
3 5
4 9
5 14
6 20
7 27
8 35
9 44
10 54
The equation is P=(MS)^2/2+((MS)-2)/2
This ignores commissions and spread which should be subtracted from these figures. Obviously the exposure is far greater with pyramiding than a normal moving stop and it may be wise to close the position at the end of day if short term trading. For many strategies this seems to reduce the return/drawdown ratio which to me is the same as the risk element.
I was wondering if anyone had considered used a pyramiding element in their methodology and how this affects the return/drawdown. Another potential advantage is that it seems to automatically increase exposure during trends when most is needed. However, it seems to work well with some securities but not others.
