Allocation and Position Sizing

Allocation and Position Sizing parameters are defined in the "Position Sizing" tab of the "Simulation Builder" dialog. Those parameters have meaning only for Portfolio Simulations but not when making simulation in Raw Profit Mode.


Allocation / Position Sizing Settings
Allocation / Position Sizing Settings


In order to determine the number of shares/contracts that will be purchased (or sold) for each position, two concepts should be taken into account: Allocation and Position Sizing.

When realizing a portfolio simulation with composite strategies (a simulation whose strategy tree has more than one strategy), it is necessary to have a method to distribute the global capital available among the terminal strategies of the simulation. Then with the allocated money, each terminal strategy must apply a position sizing algorithm to determine the number of shares/contracts to purchase (or sell) for each trade. As can be seen, this process is composed of two different stages: Allocation and Position Sizing.



Allocation can be set for all the sub-strategies (root, intermediate and terminal).

In this stage it is determined the amount of money allocated to each terminal strategy. The allocation procedure operates in a recursive way through the strategy tree up to the terminal strategies. For example if a terminal strategy has one predecessor intermediate strategy in the strategy tree, and the allocation settings for both the intermediate strategy and the terminal strategy is set to 50%, then the position sizing algorithm of the terminal strategy would be applied taking as available capital 0,5*0,5=0,25, or a 25% of the root strategy capital.

You can allocate money as a percentage of the money available to the parent sub-strategy (by selecting the "Percent" allocation type) or you can also allocate a fixed amount of money to the sub-strategy (by selecting the "Fixed Amount" allocation type). If the parent sub-strategy equity is less than the fixed amount of money selected, then the parent sub-strategy available capital is allocated.

You also can set a maximum and a minimum value for the allocated money. If the allocated money is less than the set minimum value then the minimum value is set as the allocation money (if the parent sub-strategy equity is less than the minimum value, then the allocated amount is set to zero).

In addition, two different allocation modes are available in BTAnalytics when making Portfolio Simulations, and they can be selected using the "Simulation Mode" drop down box.

a.Common Allocation Pool:

In this mode all the sub-strategies share the same Allocation Pool throughout the duration of the simulation period.

b.Independent Allocation Pools:

In this mode each sub-strategy has an Allocation Pool that is independent of the other sub-strategies pools. The size of the allocation pools is set at the beginning of the simulation using the allocation settings and then for all the simulation period each pool evolves independently from the rest.


2.Position Sizing:

The position sizing is allowed only for terminal strategies.

Position Sizing is the procedure through which the amount of shares / contracts to buy / sell short in a trade is calculated. For example, a Position Sizing method could size each order as the number of shares that can be purchased with a percentage of the allocated money available to the terminal strategy.

There are several different Position Sizing algorithms implemented in BTAnalytics and the user is able to write his own custom methods as well.

For more information about the Position Sizing methods included in BTAnalytics, please, see: Position Sizers.

For instructions about how to design your own Position Sizing procedures, please, see: Custom Position Sizers Plugins.


Using  the Position Sizing tab of the Simulation Builder dialog you can configure the Allocation and Position Sizing parameters for the Simulation.

You can select any sub-strategy (both intermediate and terminal) in the shown Strategy Tree.
When you have selected an intermediate strategy (IntermediateStrategy_16x16) you are able to configure the allocation settings for that sub-strategy.
If you have selected a terminal strategy (TerminalStrategy_16x16) you can configure not only the allocation settings but also the position sizing method and parameters for the selected terminal strategy.


Reduce Quantity Based On Volume.

At the bottom of the Position Sizing tab you can configure this option, that enables to reduce position's size to be less than a defined percentage of the entry bar trading volume for the instrument.