Allocate Trading funds to strategies based on market conditions

Trading systems should allocate trading funds to  strategies to maximize trading profits in current market conditions.    Some strategies perform well in specific market conditions such as topping while others will do better during strong directional markets.  Shifting fund allocation to strategies matched to current market conditions will yield the highest profit.    Operating multiple strategies increases risk of duplicate risk exposure that must be controlled by cross strategy risk management rules.

Ed Thorp is credited with adapting the Kelly criterion otherwise known as the Kelly betting system to determine how much to invest in a given stock based on the confidence of your selection criteria.   He published this in Beat the Market.   There is a lot of published art for the Kelly criteria but a simple version is also described in Thorps book “Beat the Dealer”. Continue reading “Allocate Trading funds to strategies based on market conditions”

Obey your Trading and Risk control rules

In an earlier blog entry I defined a stock strategy as a combination of   Algorithms + Goals + Symbols + Trading Rules.    It is tempting to take the output of the Bayes Analytic engine and apply the recommendation without obeying the rules.     Based on results from test trading earlier this year this is a very bad idea which can cause what is profitable strategy to be less profitable.      This concept is also draws from ideas described in  “When Good traders Loose“. Continue reading “Obey your Trading and Risk control rules”