Discussion in 'Journals' started by globalarbtrader, Feb 11, 2015.
This is precisely what I meant. Thanks for the explanation
My mind reading skills are pretty good, except with my wife.
Hi Isotope1 - I am intrigued by your improvement of backtest from 10 mins to 20 seconds. How did you use the ProcessPollExecutor to achieve this (what were you putting in concurrent threads?) Also what do you mean when you say "vectorize everything", and did that also contribute to your performance gains.
Hi GAT, on page 18 of this thread, you have helpfully written down some formulas showing how to estimate turnover and I was wondering if there might be a small typo. Should there be an ‘N’ term in the denominator in the last couple of expressions? Otherwise the result seems to have unbounded growth with sample size.
er probably... could you copy and paste the formulas to save me looking
Sorry of course - here you go
You're right all these are missing a 1/n term:
(250)* ([abs(p1-p0)/ (2 x P0)] + [abs(p2-p1)/ (2 x P1)] + ....[abs(pt-pt-1)/ (2 x Pt-1)]
(250)* ([abs(p1-p0)/ 2 x A0] + [abs(p2-p1)/ 2 x A1] + ....[abs(pt-pt-1)/ 2 x At-1]
(250)* ([abs(f1-f0)/ 2 x 10] + [abs(f2-f1)/ 2 x 10] + ....[abs(ft-ft-1)/ 2 x 10]
Thanks, also had this minor conundrum I can't resolve. If 90% of your system is profitable and your risk capital is going up (assuming you are below your fixed capital amount so kelly scaling applies), the rising risk capital will cause you to add to positions for the profitable part. However, for 10% that is losing money you will have the opposing effects of increasing capital and falling abs forecasts so in principle it is possible to be increasing positions to poorly performing subsystems. Do you see any value in tinkering with this behaviour and having some sort of override?
Absolutely not. You're confusing the various reasons why you should change risk capital. We're not reducing / increasing risk capital because the system is doing well / performing poorly.
There are a few different reasons why you'd reduce positions:
A- higher vol
B- because a particular trade is going against you
C- because you don't believe in a particular trading subsystem anymore
D- because you have less money to play with (kelly criteria)
These are all independent. And C&D are exogenous to the system.
So for example in a trend following system covering multiple assets you'd be scaling positions by vol (A), with the trading rule automatically reducing positions when the trend turns against you (B). Of course in a non trend following system I'd strongly advocate including some kind of stop loss to perform the function of B.
To justify C you need strong statistical evidence that the subsystem is no longer working. Evidence you're unlikely to get given the sort of time frames and Sharpe ratios that this thread is dealing with (this isn't HFT, double digit SR, land). Changes because of C should be implemented by changing instrument weights (or forecast weights if it's a particular trading rule that bothers you) - ideally in a robust out of sample way.
D affects the entire system. It may also be affected by other factors - for example I could decide to add more money to my account. Or change my risk target. I might reduce the money I had in my account if I was worried about the performance of the entire system collectively; but again ideally that would only be based on significant evidence I'm unlikely to have in practice.
Thanks GAT. Let's say you don't meddle with the risk capital your system is telling you to use. Let's say you start the trading year with a loss, and have therefore reduced your risk capital in proportion. But then you start to make money, and the +ve P&L increases the available risk capital again (until you reach your max). This would cause you scale up your positions across the board. But there is still a section of your portfolio (10%) where the trend is going against your positions yet the rise in capital would force an increase in all your positions. Rare event but if it occurs it seemed counter-intuitive to add to a section of the portfolio where forecasts might be falling. It seems what you are saying is that you should go with whatever your system tells you because this is still the best diversified portfolio?
Separate names with a comma.