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A money management strategy for stock trading

The money management is one of the most important aspects of stock trading, but among the most overlooked even by experienced investors.When it comes to money management many think the collection of outbound rules, position in fact they constitute risk management (risk management) that is just one of the components of a money management strategy whose mainstay is the so-called position sizing, that is the magnitude of the position.In drafting a money management plan one of the first questions we faced is: "profits should be reinvested or not?Assuming that you have a strategy with a positive mathematical expectation and with good regularity of profit,the reinvestment of profits certainly allows us to increase the total profits will rise exponentially but exposes us to greater volatility of the profit curve.

In fact, there is a downside, in the case of long strips of losers the drawdown percentage (i.e. the loss than the previous peak of the profit curve) is less than the case without reinvestment.It is possible to contain the volatility of the profit curve thanks to some valid formulas of position sizing.In this case we will analyze the formula of Conway.

The forecast model

As an example we will use a template (adapted from the book "professional Money management," Experta Publisher) based on quantitative analysis to determine:

  1. input timing
  2. position management
  3. the amount of invested capital
The model shown here is based on a set of conditions that take into account: volumes,

  • strength of trend,
  • volatility,
  • average prices
The input signal is generated when the closing price exceeds the exponential moving average of the last 10 bars calculated using a volatility band date from the highest of each bar added to the ATR in 10 periods.As operating filter we use an increased volumes, i.e. we take the input signal only when the volumes exceed twice their standard deviation calcolat the latest 10 bars. 
The condition of the outputs is given by Macd down under its exponential average to 10 times.It is a condition of standard output that does not take account of the fact that the titles do not all move in the same way,market makers make them move differently; some move as a function of the movements of raw materials such as oil-related titles, while others move more order.This choice was made to verify the robustness of parameter unchanged strategy without adjusting any parameters on the characteristics of individual titles.We report the encoding of language strategy Easy Language to Omega Research is evident from the simplicity of the model that can be easily transferred to other programming languages

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