Pyramiding and Number Of Positions

[davidjc01]

Hi David,

I use a quite simple Trend-Following/Break-Out system that I have extensively tested with Tradesim and am very happy with the results. A key aspect of it is to pyramid in as the position improves (this makes a significant difference.)

After trading the system for awhile though and observing real results I suspect it would improve significantly again if I reduced the Position Size. With Tradesim as it is however, if I do this it will take ALL trades until capital is full utilised, and this turns out to be worse.

For example if I use Risk Sizing of (say) 1.5% of capital and a Minimum Position Size of (say) 6% I get very good results. If I use 0.5% and 2.0% the number of trades increases significantly and the profit is significantly lower.

What I would like to do is use 0.5% Risk and 2.0% MinSize AND limit the number of positions to (say) 10... but NOT INCLUDING PYRAMIDS.

So the number of UNIQUE equities held would be a maximum of 10 (or some other variable) but the number of pyramids of each would continue to grow as long as capital was available.

At present I don't believe this can be done with Tradesim.

Regards, David

[davidjc01]

Hi David,

I have thought some more about this and have some additional comments.

I should say at the outset that I have gone back and re-read Van Tharp, Elder, etc, etc; and Colin Nicholson's recent (and very good) "The Aggressive Investor." Each of these has influenced these thoughts.

1. I would still like to be able to limit the number of pyramid bases ie the number of first positions taken of a stock and then seperately limit the number of pyramids entered. So irrespective of capital available I am allowed to take only (say) 10 initial positions. And then separately control the number of pyramids taken. At present if there is cash available there is no way to prevent the simulator from entering a new security rather than waiting for a pyramid to become available. I understand that the simulator can give preference to a pyramid over a new position, but this is only if they are presented and available on the same date, isn't it?

2. It would be good to modify the Position Size Rules panel within the simulator to provide greater flexibility. For example the Maximum Position Size only provides for a number of contracts (or I presume shares.) Sometimes under the Minimum Position Size rule positions end up being way too big. This is especially true if the Stop happens to be close to the price action. Can this area be modified to provide for a Minimum AND/OR Maximum Position Size? For example, following Nicholson's method, for each step in a pyramid I would like to take a Position Size of a Minimum of 2% of Capital, but also a Maximum of 6% of Capital.

3. Following on from #2 above... Then, when subsequent pyramids are entered, an option of entering the same sizing parameters again, OR ensuring that the TOTAL of all pyramids of that particular security is not greater than (say) 6%.

4. Similarly when Risk is determined, each step in the pyramid could be calculated at (say) 0.5% or 1.0%... with an optional limit to the TOTAL risk for all pyramids in that security (say a TOTAL of 1.0% or 1.5%). Again, see Nicholson for a discussion on this.

The more I learn about this game the more I realise it really is all about risk control.

Trust these ideas are useful.

Regards,

David