In the Advanced Pos Sizer | Percent Volatility the config box has a field called "Percent of Volatility" (see pic above). I'm trying to understand what it means and how it works. Can someone please explain?
Rename
It's documented in the Help > Extensions > Power Pack > Position Sizers > Percent Volatility (first paragraph).
Here's what I'm trying to do:
2% risk and 5% of Equity size limit (to allow for up to 20 positions max).
Try using these settings (as shown in pic above) on *any* strategy and check to see what the actual position size was... you'll find that it's a tiny fraction of what it should have been.
2% risk and 5% of Equity size limit (to allow for up to 20 positions max).
Try using these settings (as shown in pic above) on *any* strategy and check to see what the actual position size was... you'll find that it's a tiny fraction of what it should have been.
Not sure what you're trying to imply here, the calculation is correct and has been ported from WL6. Also, 2% is quite big so yes, the position size is expected to be smaller than if you'd take the default value (4 times less).
Before we go any further I would like to ask:
The Pos Sizer allows you to specify what period to use for ATR but how come it doesn't ask how many ATRs we want to use as our stop/risk (2, 3, 4, whatever number of ATRs)?
The Pos Sizer allows you to specify what period to use for ATR but how come it doesn't ask how many ATRs we want to use as our stop/risk (2, 3, 4, whatever number of ATRs)?
Position size = Equity * Percent of Volatility / 100) / ATR[idx]
$100,000 * 2.0 / 100.0 / say $50 = 40 shares
$100,000 * 2.0 / 100.0 / say $50 = 40 shares
There are a number of issues:
1) As per your example above you're using Percent of Volatility (divided by 100) when you actually mean Percent of Equity at risk.
2) The $50 value in the example used presumably represents the share value which begs the question - where is the ATR value being used??
3) Why is there no place to choose the number of ATRs one wants to use?
4) The description of the Pos Sizer says... "...an option to round lots to nearest 100 is provided...". The box is missing.
=======================================
SOLUTION:
This is a great Pos Sizer but it needs to be rewritten:
1) There needs to be a field for Number of ATRs; multiplied by the ATR (user-specified period) value this would define the point risk of the trade.
2) The Percent of Volatility (a misnomer anyway!) box should be renamed 'Percent of Equity Risked per trade'.
3) Create a box for 'Round lots (always down, never up)'.
[(Optional): 4) Max Percent of Equity may be renamed to 'Max Percent of Equity Allocated per trade' ]
To illustrate how this would work // Assumptions:
A/C value 100,000 // Percent of Equity Risked per trade: 2 (%) // Stock price: $30 // ATR value (for user-defined period): 1.0 // Number of ATRs: 4 // Percent of Equity Allocated per trade: 10 (%)
Point risk per trade = 1 x 4 = 4
Dollar risk per trade = $100000 x 2% = $2000
Dollar risk per trade / Point risk per trade = 2000 / 4 = 500 shares
However, $$ allocated per trade cannot exceed: 100000 x 10% = $10000
Final number of shares to buy: 10000 / 30 = 333 (rounded down to 300 if Rounding box is selected).
1) As per your example above you're using Percent of Volatility (divided by 100) when you actually mean Percent of Equity at risk.
2) The $50 value in the example used presumably represents the share value which begs the question - where is the ATR value being used??
3) Why is there no place to choose the number of ATRs one wants to use?
4) The description of the Pos Sizer says... "...an option to round lots to nearest 100 is provided...". The box is missing.
=======================================
SOLUTION:
This is a great Pos Sizer but it needs to be rewritten:
1) There needs to be a field for Number of ATRs; multiplied by the ATR (user-specified period) value this would define the point risk of the trade.
2) The Percent of Volatility (a misnomer anyway!) box should be renamed 'Percent of Equity Risked per trade'.
3) Create a box for 'Round lots (always down, never up)'.
[(Optional): 4) Max Percent of Equity may be renamed to 'Max Percent of Equity Allocated per trade' ]
To illustrate how this would work // Assumptions:
A/C value 100,000 // Percent of Equity Risked per trade: 2 (%) // Stock price: $30 // ATR value (for user-defined period): 1.0 // Number of ATRs: 4 // Percent of Equity Allocated per trade: 10 (%)
Point risk per trade = 1 x 4 = 4
Dollar risk per trade = $100000 x 2% = $2000
Dollar risk per trade / Point risk per trade = 2000 / 4 = 500 shares
However, $$ allocated per trade cannot exceed: 100000 x 10% = $10000
Final number of shares to buy: 10000 / 30 = 333 (rounded down to 300 if Rounding box is selected).
2) The $50 value in my example represents the ATR[idx].
3) There's no intention to provide such option, it's a remnant from the WL6 description - removed for next build.
3) There's no intention to provide such option, it's a remnant from the WL6 description - removed for next build.
If it was the ATR value then where is the share price used in sizing?? And who would use 1 ATR???
Bottom line: The Pos Sizer is messed up.
If its not going to be fixed I suggest creating a new one - one that takes into account both stop-based % risk and Equity % allocation as there is no other that does that (they handle one or the other but not both).
Bottom line: The Pos Sizer is messed up.
If its not going to be fixed I suggest creating a new one - one that takes into account both stop-based % risk and Equity % allocation as there is no other that does that (they handle one or the other but not both).
Hey Sammy, I do understand that this position sizer enhancement is important to you, could you submit a #FeatureRequest for the desired addition? We have a lot of requests in the queue but let’s see if others in the user community share your feeling on this particular enhancement’s importance in the grander scheme of things.
@Sammy_G
The percent volatility PosSizer is mature and does not require improvement. (Especially expressed in such manner.) It follows the industry standard formula known for decades. If you haven't followed Bulkowski's link from the PosSizer's help, I guess it's time to.
https://www.thepatternsite.com/MoneyMgmt.html#AADB2
The percent volatility PosSizer is mature and does not require improvement. (Especially expressed in such manner.) It follows the industry standard formula known for decades. If you haven't followed Bulkowski's link from the PosSizer's help, I guess it's time to.
https://www.thepatternsite.com/MoneyMgmt.html#AADB2
@Glitch
Done (https://www.wealth-lab.com/Discussion/Dual-Risk-Management-Position-Sizer-9458).
QUOTE:
could you submit a #FeatureRequest
Done (https://www.wealth-lab.com/Discussion/Dual-Risk-Management-Position-Sizer-9458).
Okay, I see no big harm about adding a number of ATR units to this PosSizer. In fact, this blog mentions an evolution of the method by introducing an ATR factor:
"Use Atr in Position Sizing (Best Way to Use Atr)"
https://therobusttrader.com/how-to-use-atr-in-position-sizing/
"Use Atr in Position Sizing (Best Way to Use Atr)"
https://therobusttrader.com/how-to-use-atr-in-position-sizing/
That would be nice, Eugene. But that's not the only issue: The wording used - from the name of the Pos Sizer to the box "Percent of Volatility" - is rather confusing.
So, may I humbly suggest:
- You can let this Pos Sizer be as is - for legacy reasons and also b/c some folks may be using it in whichever way they are and their strategies may get broken
- Instead, develop the new one I put in a #FeatureRequest for ("Dual Risk Management Pos Sizer"); I took pains to make sure that the name of the sizer and the fields inside use wording with zero ambiguity. You could use this sizer's code as base and change a few things and voila! you have a new sizer that everyone will be able to interpret and use confidently.
My less-than-two cents.
So, may I humbly suggest:
- You can let this Pos Sizer be as is - for legacy reasons and also b/c some folks may be using it in whichever way they are and their strategies may get broken
- Instead, develop the new one I put in a #FeatureRequest for ("Dual Risk Management Pos Sizer"); I took pains to make sure that the name of the sizer and the fields inside use wording with zero ambiguity. You could use this sizer's code as base and change a few things and voila! you have a new sizer that everyone will be able to interpret and use confidently.
My less-than-two cents.
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