Position Sizing & Pyramid: how to implement both

R

rs2000

Hi All,
I am working on a project below which takes positon based on the simple moving average breakouts.



  1. Run the system in each of the following three Position Sizing modes
  1. Percent Volatility Model
  • Market’s Money Model
  • Multiple Tier Position Sizing




  1. Design and implement the pyramiding strategies mentioned below to add on to your positions once the trade starts moving in a favorable direction

  • Upright pyramid
  • Inverted Pyramid
  • Reflecting pyramid

Initial entry into trades would be based on the pyramiding strategy chosen (mentioned above), and then new positions would be added on top of it

-------------------------------------------------------------------------------------------

I have a few questions on this. can you please help here

1. Multiple Tier position sizing: whats this model. can you please give an example

2. how do I use pyramiding and position sizing together? so pyramid would determine how many new shares I buy for stock1? and position sizing would determine how much money (from my total equity) I allocate amongst all stocks in portfolios? but wouldn't pyramiding and position sizing overlap (both determine the # of shares I buy eventually). Please can you help me understand how can I apply both at the same timeis this applied!

thanks a lot!
 
Here you go - I call this layering and not pyramiding. I only add onto my position at significantly higher prices and on moves out of congestion - I am taking profits along the way which makes it a lot easier to be ringing the register as you go. This way I have the smallest size on when wrong & largest size on when right. This could be done with day or trend trading although I am a swing trader - avg holding time is 2-4 weeks.

upload_2018-3-25_20-33-34.png
 
comagnum,

"... I have the smallest size on when wrong & largest size on when right."

Yep. Either that or all-in / all-out. Taking multiple positions going in the same direction is the same as taking simultaneous, individual bets.

Taking on the largest size in the beginning and peeling off risk as the trade goes your way is called reverse position-sizing (a bad thing). That kind of math forces you to have a higher winning pct to compensate for taking a bigger hit on the losers.

When you've done this long enough, an interesting pattern occurs. You realize that avg winning pct is inversely related to the reward to risk ratio. So, without knowing anyone's actual trading method, if he/she tells you their avg winng pct is 70% over 100's+ trades, then you can be highly confident their reward to risk ratio is hovering around 1:1. And, if he tells you, "I'm working on improving the RR", tell'em, good luck with that b/c you're already optimal in the long-term with whatever you're doing. The same holds true for 50%, 60%, 80%, etc avg winning pct. For 2:1 RR, 50% winners is close enough to optimal. You can fill in the rest with those 2 examples. [Note: one-sided markets don't last long but their effects can skew these longer term avgs so the individual tracking performance may/will come to the wrong conclusions about their continued good fortune. Take it for what it is: a temporary gift not of your own doing.]

I think this touches upon why most fail. The typical newbies WANT to be RIGHT 70/80% of the time AND they also WANT to lose LESS than they make per trade (on avg). Their entire psyche is driven to meet these two incongruous desires.
 
Last edited:
SteveH said:
The typical newbies WANT to be RIGHT 70/80% of the time AND they also WANT to lose LESS than they make per trade (on avg). Their entire psyche is driven to meet these two incongruous desires.
More...

nothing is incongruous here

one has to develop the psyche :) and of course the method, which comes hand in hand
 
rs2000 said:
Hi All,
I am working on a project below which takes positon based on the simple moving average breakouts.



  1. Run the system in each of the following three Position Sizing modes
  1. Percent Volatility Model
  • Market’s Money Model
  • Multiple Tier Position Sizing







    • Design and implement the pyramiding strategies mentioned below to add on to your positions once the trade starts moving in a favorable direction
  • Upright pyramid
  • Inverted Pyramid
  • Reflecting pyramid
​
Initial entry into trades would be based on the pyramiding strategy chosen (mentioned above), and then new positions would be added on top of it

-------------------------------------------------------------------------------------------

I have a few questions on this. can you please help here

1. Multiple Tier position sizing: whats this model. can you please give an example

2. how do I use pyramiding and position sizing together? so pyramid would determine how many new shares I buy for stock1? and position sizing would determine how much money (from my total equity) I allocate amongst all stocks in portfolios? but wouldn't pyramiding and position sizing overlap (both determine the # of shares I buy eventually). Please can you help me understand how can I apply both at the same timeis this applied!

thanks a lot!
More...
forget about pyramiding
 
You must log in or register to reply here.
Back
Top