Systematic Traders - How many systems do you run?

Discussion in 'Strategy Building' started by gmst, Aug 6, 2012.

How many systematic strategies do you run concurrently?

  1. <3

    35 vote(s)
    50.7%
  2. 3-5

    9 vote(s)
    13.0%
  3. 6-8

    3 vote(s)
    4.3%
  4. 9-12

    6 vote(s)
    8.7%
  5. >12

    16 vote(s)
    23.2%
  1. achilles28

    achilles28

    I think we're both saying the same thing, but from different angles. Splitting capital between 2 correlated markets results in equal (or better) performance had the capital been allocated to one instrument alone. However, two correlated instruments relative to 2 uncorrelated instruments, the obvious choice is two uncorrelated. The trick is the assumption of 1% risk per trade, or whatever, across 10 instruments, each of which might be highly correlated, producing a bunch of signals at once = far more than 1% risk per trade.


    Not sure what you mean by capital assignment factors. Can you explain? Why not rank by performance? I would. Seems most logical.
     
    #31     Aug 15, 2012
  2. jcl

    jcl

    With 10 totally correlated instruments the risk would be 10 times higher, but also the profit, resulting in the same return (which is defined as profit divided by bound capital).

    Because a rank alone tells you nothing, you need a quantitative factor, an optimal percentage of the available capital that you can assign to that strategy. This percentage also does not depend on performance alone, but also on correlation, drawdown, and maximal loss, so you need the whole equity curve to calculate it.

    I can't explain this here in short, but you can find more on the web when you google for "OptimalF", "Kelly" and "money management".
    In defense of intradaybill, I think that he's real, not like all those people that register from time to time, make some posts about how great "priceactionlab" is, then disappear again. The guy selling that software goes apparently to great lengths to promote it. But I suspect that intradaybill is a real customer who has really paid $10K for that software, believing that it would make him rich. :) This might explain his bizarre posts.
     
    #32     Aug 15, 2012
  3. Why do you find the requirement of specific conditions a problem? Does it lead to too few trades? Even across a wide number of markets?

    I'm working across multiple markets with the same strategy as well and I'm finding that at any given moment, at least one market has triggered a trade, but there are times when I have no position in any market. I suspect that if I continue to add markets, my percentage of time in the market across them all will get closer to 100%.
     
    #33     Aug 16, 2012
  4. jcl

    jcl

    Well, in the anonymity of a forum you can of course make any claims about yourself. We can only judge you from your posts here. They never contained anything substantial - only either platitudes, or insults, or advertisements for that scam software. Maybe you're a great super trader, but you're hiding this very successfully.

    As to me, anyone can just google me under my real name, Johann Christian Lotter. On the web you can find easily my address, my companies, our team, the projects, even the trading tool and equity curves. If you want to appear here as the super trader, then show something substantial - or just shut up and save bandwidth.
     
    #34     Aug 16, 2012
  5. I have about 20 excellent systems for each of the scanned 930 stocks, approximately 19000. They are autogenerated, and in total, my CPUs have produced well close to a billion strategies by now. I run only 14 (up to 20) on real money because of the correlations (ie diversification) and capital, but it's enough to make my portfolio equity curve look as smooth as a baby's bottom. Now if only I could get the SEC to allow 10:1 margin for overnight equities... :/
     
    #35     Aug 16, 2012
  6. gmst

    gmst

    LOL on last 2 lines. Congratulations on getting such good results. Do you mind posting few (maybe 2-3) of your single system equity curve and the portfolio curve? That would be instructive!

    This is a request to all the systematic traders who are participating. Please share your portfolio construction methodology along with portfolio equity curve and couple of single system equity curves for comparison purposes. If you have not managed to develop a portfolio construction methodology yet, this exercise would be very useful in developing a methodology that is required for long term success.
     
    #36     Aug 16, 2012
  7. gmst

    gmst

    Thank you very much! Great Response! I have started working on developing a position sizing and portfolio construction methodology, that has kept me very busy so responding late. I am approaching portfolio construction of systems in the following way:

    1. Ranking each system individually either using a combined rank using parameters like PF, Sharpe, Win/Loss, DD, Smoothness of curve etc. Or using multiple dimensions to construct a multi-dimensional rank for each system. An E.g. for a single rank would be:

    http://unicorn.us.com/trading/expectancy.html

    2. Coming up with a position sizing methodology for each system viz. fixed fractional, fixed ratio, volatility based etc. I would also do MonteCarlo in steps 1 and 2 to generate multiple instances of trade sequences. A bit of work but important and required for robustness.

    3. Compare correlations of systems on a historical basis (using daily/monthly data) and then on an ongoing rolling basis.

    4. Deciding on position sizing different systems to construct a portfolio. Using an optimization procedure sounds right, but imo, is wrong. Instead, position sizing of different systems should be based on Monte Carlo again.

    After the portfolio has been constructed - On an on-going basis, following measurements would be required:

    1. Checking if edge persists for each system
    2. Correlations between systems
    3. Changing Position sizing for different systems in the systems portfolio periodically based on above two points.
     
    #37     Aug 16, 2012
  8. Trade # was not the problem I was referring to LM. The problem I was referring to is a dynamic judgment ability I think being a successful trader requires. This means you have to monitor markets you are trading or have some sort of basic alert for the pattern, and then you have to check it youself if you want to place a trade. This can get tedious the more markets you watch.
     
    #38     Aug 16, 2012
  9. gmst

    gmst

    Continued from above.....especially the point 4 above - which is super complex imo.

    In my view, the biggest challenge is - how to model combined DD for the portfolio. This is the real risk on portfolio level going forward. This is complicated because say you have 10 systems and you run 100 simulations (bare minimum imo) on each system to generate DD figures for each particular system. To know the portfolio DD from these individual Monte Carlos, you will need to do 100^10 = 100,00,00,00,00,00,00,00,00,00 calculations.

    Doing even 10 simulations per system, would mean 10^10 = 10 billion calculations to compute portfolio DD. However, this simple approach (even though computationally time consuming) doesn't take into account correlations between the systems and hence is wrong!

    The correct way to approach this problem, again imo, is to run a Monte Carlo on all the systems together, where you are sampling from a joint distribution using a correlation table. This will allow us to compute usable statistics for the portfolio DD etc. using 'just' 1000 simulations. Makes it computationally much easier to solve. The drawback in this case is that this assumes we know the 'true' correlations between systems and the correlations between systems are constant. We know in reality both these assumptions are wrong.

    Thinking further - It seems like the "correct" way to backtest a portfolio of systems over multiple years would be to compute rolling correlations every year or every half year and use this rolling correlation table to run Monte Carlo on different systems using a joint distribution. Portfolio of systems will be re-balanced in this method every year or every half year.

    To be continued....
     
    #39     Aug 16, 2012
  10. 10:1 leverage on equities is available synthetically. Nothing remarkable there.
     
    #40     Aug 16, 2012