Febuary 9th, 2014

Fix Fraction Position Sizing

My new paper deals with an equation designed to help you make more money by adding small improvements to your own trading strategies (should they not be present already). The equation (named red5) is a complete trading strategy in itself. It presets trading rules in order to generate long term positive alpha. I would suggest that your objective is to extract from red5 what you need and incorporate the lessons learned into your own trading methods.

There are not that many trading systems that can be described using a single equation; red5 is one of them. I have other systems based on mathematical equations and therefore it might have been easier for me to accept that a trading methodology could be based on an equation.

An equation makes the trading strategy only concerned with trading rules, on what you want to extract from the market instead of trying to find some trading procedures based on data mining of some sort able to give you a long term edge.

The approach is different here. You build a trading strategy made to follow a mathematical function that predetermines all your future trade behavior. The red5 program code provides the automated trading procedures needed to execute its governing equation. These preset trading rules can also be executed on a discretionary basis.

The paper is organized as a time line. As the research evolved, new components were added to the basic equation. There are 5 equations considered in this paper: from red1 to red5; each serving as stepping stone for the next in line. But the most valuable without a doubt is red5. For those wishing a fast read, simply jump to the red5 section.

The red5 equation is not talking about randomness, it is talking about future trade execution under uncertainty with simple protective measures. Even with no special predictive skills, meaning providing no edge above randomness, say like having a 50% winning ratio, one would still win the game. The red5 equation requires a lot more study, I've only scratched the surface. For instance, I can see another controlling function, controlling the alpha booster controller over time as just one of many avenues of research.

I think the main purpose of the paper was to help anyone improve on their own trading strategies.

New paper: Fixed Fraction Position Sizing: A Stock Trading Strategy.


Created... Febuary 9th, 2014 © Guy R. Fleury. All rights reserved.

 

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