Money management on an automated strategy

Discussion in 'Risk Management' started by Girlpower, Feb 2, 2003.

  1. I'm hoping someone can give me some advice. I'm designing automated trading strategies at the moment. They're getting close to the test stage before any money is put beind them.

    Principally they are designed for the mini's, and that is where I am starting with this.

    The money and size management for the acount I would like to automate too. My basic idea is to assign an amount equal to the initial margin requirement for per contract, and add to that an amount equal to 4 times the largest drawdown experienced through back tests - again, per contract.

    Then to increase size when there is enough in the account assigned to this strategy for an extra contract. Now, I know that it could start to increase in the numbers of cars fairly rapidly later on if it proves to be successful, so I'm also thinking of having another filter in the mix to make sure that the account doesn't get blown up.

    I was thinking that the increase must be on a per contract basis, so if 2 contracts are being traded, then they must produce between them enough to cover the criteria to increase by another 2 before increasing by 1 and keeping the increment to 1 only. Also having a system to reduce the no of cars if the available funds drops below the level set to support the number being traded.

    Any thoughts?

    Thank you

  2. Sounds to me like some if-then statements will do the trick...!

    I am unsure of the progression strategy however. As I interpret your strategy, the first acct must double in size to allow for a second contract. Then that acct must double again before you add one more contract. Is this the concept, you must double the acct each time before you add another car? Saying, if you start with 10K on one contract, you must have 20K before adding another, then 40K before adding a third, then 80K before adding a fourth.
  3. If all you're doing is trying to figure out when to increase your trading size when your account grows enough, why waste time with "automating" it? It's not that complex and what's the value of automating it? This isn't likely to change even on a daily basis, let alone an hourly or shorter time frame basis.

    If you were trying to adjust your position sizes dynamically throughout the day based on something like expected probability of success of a particular type entry, then it would be worth worrying about automating.

    But just to decide when to add a contract to your normal trade size?? Better to worry about getting your trading methods as profitable as possible trading one contract rather than worrying about coding something that will change so infrequently.

    My two cents anyway.
  4. Yes Inandlong, that's pretty simple statements. You are right about the doubling effect too, but the idea is to leave room to draw the surpluses out of that strategy and divert money later to other strategies and do the same again with others, so the effect would not be quite the equity curve you are describing. Does any of this make sense?


  5. I already need to insert code that obtains account information anyway and sizing code too, so it's easy enough to add just a few extra lines for variable sizing. But yes - I agree. 99% of the effort is on the strategies themselves. This is just an afterthought...

    And yes - sizing according to risk would necessitate a much more complex design. Thank you for the idea there - That is something I can use in another strategy I'm working on.

  6. m_c_a98


    Here is my guideline, maybe it can be of some help.

    Keep in mind that you must first have a winning system :) with positive expectancy or varying contract size will not help save it.

  7. Thank you - yes that does help - I can see the relationships in the numbers too so it's easy enough to code.


    p.s. I'm not even looking at anything that doesn't come in at 70% 2:1 or better :)