I’ve been trying to make a formula to limit the position size in a simulation to a % of daily trading volume without success. For example, for a stock which has volume of 100,000 shares per day, I would like to limit my position size to say 20,000 shares total, ie. 20% of daily volume.
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Philip,
Edit: Deleted. Sorry. Related but not really responsive to your specific question. Will think about it.
Jim
If your buy rules include a rule like BuyAmount/Price < 0.2*AvgVol(20), the simulation will not buy stocks for which your buy formula would be higher than this amount.
In general, there are no ways to vary position sizes in absolute terms, only in relative terms.
The reason is simple. Let’s say your portfolio starts out with $100,000 and grows, after eight years, to $8,000,000, due to a 30% per year compound growth rate. Then the position sizes at the beginning of your simulation would be entirely different from those eight years down the road. Simulations should ideally behave in a relatively consistent manner throughout the time period being tested, or else the results will be very difficult to interpret.
In addition, formula weight rebalancing is already very complex. Adding hard dollar limits would increase the complexity many times over, since this would mean allowing both relative and absolute position sizing rules at once.
I suggest you create a formula weight rule that would be true for your own portfolio right now and then run the simulation accordingly. For example, if you’re holding twenty equally weighted positions except that some positions have lower weight because of low liquidity, you can have a formula like Min (5000000, MedianDailyTot(60)).
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