Thanks a lot, I think the scaling is made consistent by the denominator term when dividing by std deviation of price diff.
Good luck! I'm in almost exactly the same situation. I went live about 3 weeks ago, same capital, but I only got 8 instruments, not sure how you managed to squeeze 14 and keep the capital allocations somewhat equal (or did you not try to do that?). Also, bad luck (timing wise) with MXP , I'm in the same boat there too.
If your expected SR improvement>0 and costs=0 then surely the optimal schedule is to do it immediately? Though not sure what your definition of 'smoothness' is, some kind of tracking error between p&l before and after the change? GAT
For the record, I disagree with this. I've never found any statistically significant pattern between SR (pre or post cost) of a trading system and eg volume of an instrument. GAT
Dividing by vol does indeed make the rule consistent across instruments (and across time). I've experimented with other rules that take vol scaled or % returns cumulated into a price series as their input, and they provide a little diversification, but they aren't neccessary to achieve consistency across instruments. Others have replied already, but basically it's better to use a scalar that is estimated across many instruments to avoid overfiting and there is no good reason why the scalars should be different across instruments. You can even estimate the scalar using a random walk price series, you get pretty much the same answer. GAT
If you assuming geometric SR, no serial correlation of your returns, no alpha decay etc, probably so. Once any of these assumptions is broken, I am not so sure. For example, if you are beholden to dollar Sharpe (many prop shops do that), it becomes a very different decision. Sorry, "smoothness" was a wrong word here, rather a "desired risk metric". In my specific case (a standalone book at a fund) it is avoiding a draw-down of a given dollar magnitude. More specifically, it would be a scale-up rate that would not put me below zero on the year given PnL YTD.
Well, I'd imagine that your strategies are exploiting a very specific feature, so it's hard for me to comment. In general, however, liquidity and efficiency go hand in hand. Something like the spooz are very liquid and extremely efficient, while something like SET50 futures have all sorts of quirks you can exploit. PS. Actually, this make me wonder if that's a sign that your primary source of alpha is cross-sectional risk premia rather than market inefficiencies.
It would make sense and it's mostly a good thing. Biases tend to be more persistent and are easier to capture with limited infrastructure. This said, it's hard to attribute these things well.