--- In [email protected], "brian_z111" <brian_z...@...> wrote: > > Did you consciously choose this 'portfolio model' or did you drift into it? > Why do you do it that way as opposed to another? > What advantages do you see in your method? > >
Well Brian, as you are always a very kind person, I don't want to give the impression I don't like to answer your questions but I feel Hicks already exposed my exact points in massage #137869: "There are two main ways to combine systems. One option is each has its own equity pool and the other is they share an equity pool.". Ok, let's try another way: leave the multisystem field for a moment and think about trading ONE system on ONE market. After some research, we can think to need a starting capital of X. Now let's think to expand to a portfolio of N different market with equal volatility and contract amount (I'm simplifying!!!): is the capital required N*X? No, because diversification does reduce risk not always (ask LTCM) but most of the time .. (just as example, one can re-read William Gallacher at pag 188 of his book "winners take it all"). So - JUST AS A THEORICAL EXAMPLE let's say we need a starting capital of Z which roughly equals (the square root of N multiply by X). Now, we are going to introduce multisystem : on a portfolio of N markets, we trade M systems. What is the starting capital needed? Well, it depends on the correlation about systems (by the way, speaking about correlation without defining "a time window" makes no sense .. but I already told I'm simplifying!). But theoretically, only in ONE case we need a starting capital of Z*M. Yes, it is obvious: it is only when the M systems' results are 100% correlated . (that's means you have no reason to trade M systems . but this is just an example). In any other case, I would need a trading capital that is LESS than Z*M, which LESS means a more efficient use of it. So, in the end, people saying "I will allocate X% of funds at system A and Y% of funds at system B . and so on .. they are probably in a total unconscious way supposing that all their systems are perfectly correlated. If this is crystal-clear why are still people thinking in terms of X% allocating at strategy A and Y% at strategy B? Because we have sometimes different objective. For example, in very big hedge funds, allocating X% of capital to every trading scheme allows to more clearly tracks the risk and reward of each approach and also valuate the jobs of the different group of traders in charge for it (and commiserate accordingly the year end bonuses too). But in this way, at the end of the day, they are just summing N equity curves, giving away the chance to reap the synergies that are possible with the "just one cash drawer" approach (as I think were described in previous posts). Ok, that's all for now because this thread is very interesting but my actively following it is starting to impede my normal daily routine!!! PS my flow chart was nothing special, I know. It was presented to suggest that .. if Traderstudio has a version of it if others (Trading Blox) made another version, even in a sub optimal way (and this is just my humble opinion), . and if they are not rebalancing anything even with the approach of dividing X% initial capital among the strategies .. well . it means to me it is quite possible to overcome the objections exposed here except one: if there are only 20 people interested to it .. well then it is not a problem of Amibroker developer's but a problem of these 20 people
