Leverage and System Allocation

[JulianCohen]

Nick can I ask you what percentage of your Trading account is allocated to the US MOC and what is allocated to the US MR?

That will give me a guideline of how to adjust things

[ScottMcNab]

If wanted to minimize risk I guess you would use the smallest size possible in the 4x leverage account to meet your goals and allocate all the rest to non-leveraged systems.
If instead were focusing on profits then would try and use largest amount of leverage account that think could apply and survive in worst case scenario based on backtests and pain tolerance
That may be a starting point ?
Everyone would be slightly different in their allocation if aiming to maximize profits due to different risk tolerances. If, however, wanted to minimize risk then once determined goal (eg cagr/maxDD) then it becomes more of a mathematical calculation

[SaidBitar]

i have one suggestion why not to run backtest on all the systems over certain duration let’s say from 2000 until now and then write small code for buy and hold of all the resulting equity curves and in the position size you set your current configuration and see the results then you can play with the allocations till you find what is best for you in terms of exposure

[JulianCohen]

Hmmm…that’s an idea

[SaidBitar]

I use this to check the systems on the same account how they perform together and if the total DD is acceptable or not
I can give you the code for this but it will be after 5 hours

[JulianCohen]

No rush…I won’t do it until tomorrow anyway

[RobGiles]

HI Julian,

I’m not sure I understand your approach sorry. Here’s how I’m looking at it:

Financial Markets Strategy Allocation – Current Mix (strategy, % investable funds allocated , Style/Approach):
ASX Dividend Portfolio (20% Stop) 15.8% Income
ASX Long Term Growth Portfolio (20% Stop) 33.8% Income
MSCI Growth Fund (20% Stop) 18.1% Income
ASX Mid Cap Trend Following System 14.4% Trend Following
US MOC System 2.3% Mean Reversion
Discretionary Trading 5.6% Discretionary
Alternative Assets 10.0% Alternatives
Total 100%

Financial Markets Strategy Allocation – Target Mix:
ASX Dividend Portfolio (20% Stop) 16% Income
ASX Long Term Growth Portfolio (20% Stop) 8% Income
MSCI Growth Fund (20% Stop) 8% Income
US MOC System 4% Mean Reversion
ASX Mid Cap Trend Following System 8% Trend Following
US Momentum System 12% Trend Following
ETF Momentum System 15% Trend Following
ASX Momentum System 15% Trend Following
Discretionary Trading 4% Discretionary
Alternative Assets 10% Alternatives
Total 100%

So as you can see, I am only intending to allocate 4% of total cash available for investment to the MOC system, as there is a possibility of losing all the capital in that account, and I’m not interested in having the bulk of my funds exposed to a fat tail event that could wipe the slate clean. I may however, look at introducing another MR system that is only leveraged 2x and allocate another 4% to it (and take those funds away from one of the “Income” portfolios). Hope that is useful.

[LEONARDZIR]

Rob,
So far I have considered my trading account money to be very aggressive and money I am willing to lose. Perhaps over time as I get comfortable with trading systems and they outperform buy and hold I will switch more money to them. For example my MOC system has 4:1 leverage which I don’t think is acceptable for a significant portion of my retirement fund. I have a very aggressive nasdaq system with >30% drawdown which I also don’t think is appropriate for any but a small portion of my account.

[RobGiles]

Thanks for sharing Len, I agree that a 4:1 leverage system isn’t prudent for a large % of a retirement fund.

[SaidBitar]

Ok here is the code
first you need to backtest all the systems with the same capital assume 100,000$

you need to add the following code to the end of each backtest file so it will save the results

Code:

SetCustomBacktestProc(“”);
if( Status(“action”) == actionPortfolio )
{
bo = GetBacktesterObject();
bo.Backtest();
AddToComposite( bo.EquityArray,
“~~~ASX_MRV”, “X”,
atcFlagDeleteValues | atcFlagEnableInPortfolio );
}

the name should be changed with each strategy

then add all the created results to one watchlist so you can test against it. This way is much faster than going all over the symbols in the database

here is the code that will generate the results of testing all the systems togther with different allocations for each system
you can add/remove systems as per your need

Code:

BacktestCapital = Param(“BackTest Capital”,100000,1000,1000000,1000);
TotalCapital = Param(“Total Capital”,100000,1000,1000000000,1000);

ASXMRVPerc = Param(“ASX_MRV Perc”,24,0,100,0.01);
ASXMOCPerc = Param(“ASX_MOC Perc”,28,0,100,0.01);
USMRVPerc = Param(“US_MRV Perc”,28,0,100,0.01);
USMOCPerc = Param(“US_MOC Perc”,24,0,100,0.01);
USWTTPerc = Param(“US_WTT Perc”,37,0,100,0.01);
SPMOMOPerc = Param(“SP_MOMO Perc”,11,0,100,0.01);
NDMOMOPerc = Param(“ND_MOMO Perc”,11,0,100,0.01);

c = c/BacktestCapital*IIf(Name() == “~~~ASX_MRV”,ASXMRVPerc,
IIf(Name() == “~~~ASX_MOC”,ASXMOCPerc ,
IIf(Name() == “~~~US_MRV”,USMRVPerc,
IIf(Name() == “~~~US_MOC”,USMOCPerc,
IIf(Name() == “~~~US_WTT”,USWTTPerc,
IIf(Name() == “~~SPXMomentum”,SPMOMOPerc,
IIf(Name() == “~~NDXMomentum”,NDMOMOPerc,
0)))))))*TotalCapital/100;
o = o/BacktestCapital*IIf(Name() == “~~~ASX_MRV”,ASXMRVPerc,
IIf(Name() == “~~~ASX_MOC”,ASXMOCPerc ,
IIf(Name() == “~~~US_MRV”,USMRVPerc,
IIf(Name() == “~~~US_MOC”,USMOCPerc,
IIf(Name() == “~~~US_WTT”,USWTTPerc,
IIf(Name() == “~~SPXMomentum”,SPMOMOPerc,
IIf(Name() == “~~NDXMomentum”,NDMOMOPerc,
0)))))))*TotalCapital/100;
h = h/BacktestCapital*IIf(Name() == “~~~ASX_MRV”,ASXMRVPerc,
IIf(Name() == “~~~ASX_MOC”,ASXMOCPerc ,
IIf(Name() == “~~~US_MRV”,USMRVPerc,
IIf(Name() == “~~~US_MOC”,USMOCPerc,
IIf(Name() == “~~~US_WTT”,USWTTPerc,
IIf(Name() == “~~SPXMomentum”,SPMOMOPerc,
IIf(Name() == “~~NDXMomentum”,NDMOMOPerc,
0)))))))*TotalCapital/100;
l = l/BacktestCapital*IIf(Name() == “~~~ASX_MRV”,ASXMRVPerc,
IIf(Name() == “~~~ASX_MOC”,ASXMOCPerc ,
IIf(Name() == “~~~US_MRV”,USMRVPerc,
IIf(Name() == “~~~US_MOC”,USMOCPerc,
IIf(Name() == “~~~US_WTT”,USWTTPerc,
IIf(Name() == “~~SPXMomentum”,SPMOMOPerc,
IIf(Name() == “~~NDXMomentum”,NDMOMOPerc,
0)))))))*TotalCapital/100;

Buy = True;
Sell = False;
BuyPrice = C;

SetTradeDelays(0,0,0,0);
SetOption(“InitialEquity”, TotalCapital);
MaxPos = Param(“Maxium Open Positions”, 7,1,25,1);
SetOption(“MaxOpenPositions”, MaxPos );
SetOption(“AllowPositionShrinking”,True);
SetOption(“AccountMargin”,25);
SetOption(“MinPosValue”,0);
SetPositionSize(1,spsShares);

I managed to test all the systems like this to see the end results and the exposure but for some reason the US WTT was not coming in the mix i wil look into it

[JulianCohen]

Thanks Said

I’ll have a play around with this over the weekend.

Cheers

[ScottMcNab]

Said Bitar wrote:

i have one suggestion why not to run backtest on all the systems over certain duration let’s say from 2000 until now and then write small code for buy and hold of all the resulting equity curves and in the position size you set your current configuration and see the results then you can play with the allocations till you find what is best for you in terms of exposure

Said..would it be any benefit to somehow exploit the “export to Microsoft Excel” function for the profit table in the backtest report ..or would it just give the same info ?

ie
for each backtest pick a time frame (eg 2000 to current) and export this to an excel file using a different sheet for each system

then have code that would extract the return month by month and average them….eg pull out the value for Jan 2000 for all the separate sheets/systems…and use these averages to construct a “portfolio summary sheet”….the returns for each month can then be used to calculate annual return…

could also add an input at the bottom of each sheet stating what weighting to give that system in the portfolio…eg if 60% for system A and 40% for system B …..then when calculating the value for that month in the portfolio summary it would multiply the monthly value for systemA*0.6 and systemB*0.4 etc…and sum them

this may help determining the impact different weighting to different systems would have ?

[SaidBitar]

It is the same but i imagined it will be faster in Amibroker

[Author]

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