sabato 29 marzo 2014

Volatility-Based Sizing

In running back tests, it’s important to understand the impact of volatility and position size. A consistent position size in number of shares or dollar amount can greatly skew historic results. If optimizing, this may lead to curve-fitting the system to periods of high volatility. Here are some examples of the impact of fixed-position sizing vs volatility-based sizing:

The first uses a fixed 1,000 share position size. When the stock price is low, position sizes are reduced and the returns appear smaller. During high-volatility markets and when the stock price is higher (right half of the chart), the P&L swings are exponentially Read more [...]

For more info: Volatility-Based Sizing

SMB Capital – Day Trading Blog