calculating working capital for money management

• 06/06/2021 at 10:26 AM #171240
  nonetheless

  I recently changed the Money Management code I had been using, mainly because it couldn’t account for the profit accrued when stopping and restarting an algo.

  Looking at the existing snippets I could find, I opted for a minor variation of one by Vonasi:

  MM = 0 // 0 for optimization if MM = 0 then positionsize=0.4 ENDIF if MM then Capital = ???? MinSize = 0.2 // IG minimum position size allowed MaxSize = 550 // IG tier 2 margin limit ProfitAccrued = 0 // when restarting strategy, enter profit or loss to date Equity = Capital + ProfitAccrued + StrategyProfit PositionSize = Max(MinSize, Equity * (MinSize/Capital)) if positionsize > MaxSize then positionsize = MaxSize endif PositionSize = Round(PositionSize*100) PositionSize = PositionSize/100 ENDIF

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  MM = 0 // 0 for optimization if MM = 0 then positionsize=0.4 ENDIF if MM then Capital = ???? MinSize = 0.2 // IG minimum position size allowed MaxSize = 550 // IG tier 2 margin limit ProfitAccrued = 0 // when restarting strategy, enter profit or loss to date Equity = Capital + ProfitAccrued + StrategyProfit PositionSize = Max(MinSize, Equity * (MinSize/Capital)) if positionsize > MaxSize then positionsize = MaxSize endif PositionSize = Round(PositionSize*100) PositionSize = PositionSize/100 ENDIF

  This is a nice piece of code and it works well, but as you can see, positionsize is based on the relation between capital and MinSize.

  MinSize is a given, so what to enter as a value for Capital? It can’t just be the amount you happen to have in your account, as that could be any arbitrary amount –  5000, 10000, 50000 – and that would be the starting point for any positionsize increase: a 10% increment would occur only after a gain of 500, a gain of 1000 or a gain of 5000.

  So how to calculate a useful figure for working capital, as it’s the only variable here with which to alter the speed of increase/decrease ?

  My first thought was to use a factor of the margin cost, eg minsize margin * 15   ???

  But it could also be related to the value of the stoploss ??

  Or the max historical drawdown ??

  Any thoughts on this greatly appreciated…

  

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  06/06/2021 at 11:02 AM #171243
  robertogozzi

  Well… I can post the one I am using (nLots is the Number of Lots to be traded):

  ONCE LotManagement = 1 //1=enable LOT size management ONCE DD = 825 //825 DrawDown ONCE DDmultiplier = 3.0 //3.0 DD multiplier ONCE MyMargin = 0.5 //0.5% margin required by the broker ONCE MyCapital = (DD * DDmultiplier) + (high * MyMargin / 100) IF IntraDayBarIndex = 0 THEN MyCapital = (DD * DDmultiplier) + (high * MyMargin / 100) ENDIF ONCE MinLots = 1 ONCE InitialSize = 1 ONCE nLots = InitialSize IF LotManagement THEN MyEquity = MyCapital + StrategyProfit MyInvestment = MyEquity / MyCapital TempLot = InitialSize * MyInvestment TempLot = round((TempLot * 10) - 0.5) / 10 nLots = max(MinLots,TempLot) ENDIF

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  ONCE LotManagement = 1          //1=enable LOT size management ONCE DD            = 825        //825   DrawDown ONCE DDmultiplier  = 3.0        //3.0  DD multiplier ONCE MyMargin      = 0.5        //0.5% margin required by the broker ONCE MyCapital     = (DD * DDmultiplier) + (high * MyMargin / 100) IF IntraDayBarIndex = 0 THEN    MyCapital       = (DD * DDmultiplier) + (high * MyMargin / 100) ENDIF ONCE MinLots       = 1 ONCE InitialSize   = 1 ONCE nLots         = InitialSize IF LotManagement THEN    MyEquity        = MyCapital + StrategyProfit    MyInvestment    = MyEquity / MyCapital    TempLot         = InitialSize * MyInvestment    TempLot         = round((TempLot * 10) - 0.5) / 10    nLots           = max(MinLots,TempLot) ENDIF

  It is based on the DrawDown (write at line 2 the DrawDown showed with LotManagement=0, disabled) with a multipliying factor (DDmultiplier), sort of leverage or risk aversion factor (I always use 3) AND the margin % required by the broker.

  

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  06/06/2021 at 11:06 AM #171244
  robertogozzi

  At line 7, each new day, the required Capital is updated (considering the fluctuation of price) to affect calculations.

   

  

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  06/06/2021 at 11:20 AM #171245
  nonetheless

  Thanks Roberto, that looks interesting – basing it on DD makes sense.

  The only bit I don’t get is

  (high * MyMargin / 100)

  1	(high * MyMargin / 100)

  what does this achieve?

  Also, could i add

  ProfitAccrued = 0 // when restarting strategy, enter profit or loss to date IF LotManagement THEN   MyEquity        =  MyCapital + ProfitAccrued + StrategyProfit

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  ProfitAccrued = 0 // when restarting strategy, enter profit or loss to date   IF LotManagement THEN   MyEquity        =  MyCapital + ProfitAccrued + StrategyProfit

   

  

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  06/06/2021 at 11:29 AM #171246
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  Ok, so (high * MyMargin / 100)  just removes the margin cost from your available funds – is that right?

  

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  06/06/2021 at 11:36 AM #171247
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  another question: is StrategyProfit calculated in instrument currency or account currency?

  The instruments I trade are either $ or € but my account is in GBP … so this would effect the margin calculation

  

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  06/06/2021 at 11:42 AM #171248
  robertogozzi

  Yes, it’s the margin calculation. I use HIGH, instead of CLOSE, to be more conservative.

  Yes, you can either:

  • use ProfitAccrued
  • increase the InitialSize

   

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  06/06/2021 at 11:49 AM #171249
  robertogozzi

  STRATEGYPROFIT is in the currency of your account, while the margin is relative to the price of the instrument.

  That’s a good point. We could change it to use an exchange rate. So if you trade Nikkei you could enter the GBP/JPY exchange rate. The drawback is that ProOrder won’t let you know what that rate is, so you will have to update it regularly (say each month).

  

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  06/06/2021 at 11:54 AM #171250
  robertogozzi

  Line 16 is to make sure there’s only 1 decimal. If you want to use 2, just replace 10 with 100, in both multiplication and division.

  To use only integers replace 10 with 1 or simply remove both the multiplication and the division.

   

  

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  06/06/2021 at 12:02 PM #171253
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  Out of interest, do you get 0.5% margin in Italy? I thought all of the EU was at 5% ?

  My account is in Switzerland and the margin deposit is 0.5%

  

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  06/06/2021 at 12:03 PM #171254
  robertogozzi

  Sorry, STRATEGYPROFIT is returned according to the involved instrument.

  This could be a solution (not tested):

  ONCE LotManagement = 1          //1=enable LOT size management ONCE DD            = 825        //825   DrawDown ONCE DDmultiplier  = 3.0        //3.0  DD multiplier ONCE MyMargin      = 0.5        //0.5% margin required by the broker ONCE ExchangeRate = 1 ONCE ProfitAccrued = 0 * ExchangeRate ONCE MyCapital     = ((DD * DDmultiplier) + (high * MyMargin / 100)) * ExchangeRate IF IntraDayBarIndex = 0 THEN    MyCapital       = ((DD * DDmultiplier) + (high * MyMargin / 100)) * ExchangeRate ENDIF ONCE MinLots       = 1 ONCE InitialSize   = 1 ONCE nLots         = InitialSize IF LotManagement THEN    MyEquity        = MyCapital + ProfitAccrued + StrategyProfit    MyInvestment    = MyEquity / MyCapital    TempLot         = InitialSize * MyInvestment    TempLot         = round((TempLot * 10) - 0.5) / 10    nLots           = max(MinLots,TempLot) ENDIF

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  ONCE LotManagement = 1          //1=enable LOT size management ONCE DD            = 825        //825   DrawDown ONCE DDmultiplier  = 3.0        //3.0  DD multiplier ONCE MyMargin      = 0.5        //0.5% margin required by the broker ONCE ExchangeRate = 1 ONCE ProfitAccrued = 0 * ExchangeRate ONCE MyCapital     = ((DD * DDmultiplier) + (high * MyMargin / 100)) * ExchangeRate IF IntraDayBarIndex = 0 THEN    MyCapital       = ((DD * DDmultiplier) + (high * MyMargin / 100)) * ExchangeRate ENDIF ONCE MinLots       = 1 ONCE InitialSize   = 1 ONCE nLots         = InitialSize IF LotManagement THEN    MyEquity        = MyCapital + ProfitAccrued + StrategyProfit    MyInvestment    = MyEquity / MyCapital    TempLot         = InitialSize * MyInvestment    TempLot         = round((TempLot * 10) - 0.5) / 10    nLots           = max(MinLots,TempLot) ENDIF

  

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  06/06/2021 at 12:06 PM #171255
  robertogozzi

  I’m not sure lines 7 and 9 require ExchangeRate.
  I will test it asap.

  

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  06/06/2021 at 12:53 PM #171256
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  If you use the Max Drawdown from a backtest (without MM) then that figure will be in instrument currency, so yes I think lines 7 and 9 would need modification for ExchangeRate.

  But ProfitAccrued would be in account currency, so I would leave it off there.

  Also, if you were going to do a backtest with LotManagement = 1  (not for optimization but just out of curiosity) then you would need to add a limit for MaxSize, otherwise it can go up insanely high…

  

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  06/06/2021 at 1:18 PM #171257
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  (high * Margin / 100) would be the margin value of 1 contract, no? … so wouldn’t a proper allowance for margin cost have to be

  (nLots*(high * Margin / 100))

   

  ??

  

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  06/06/2021 at 2:16 PM #171260
  robertogozzi

  No, the calculation of lots is at lines 16-17.

   

  

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