OmniTrader Professional Forum
OmniTrader Pro General Discussion
ATM Is Even Better Than I Thought
8 replies, 2693 viewings
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OmniTrader Professional Forum
OmniTrader Pro General Discussion
ATM Is Even Better Than I Thought
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Last Activity 2/23/2025 4:01 AM 8 replies, 2693 viewings |
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mholstius Regular  Posts: 76 Joined: 6/15/2011  User Profile |
Hard to believe, but I’m even more impressed today. Yesterday, I confirmed that there’s a way to use Port Sim to quantify the real value of ATM’s ranking and trade limiting capabilities - and see the improved results we get because of them. Bear with me if what follows seems simplistic - I just want to make my observations as clear and concise as possible. I wrote about this topic 2 years ago in Omnivest, but it’s even more important now that we have ATM. IB is happy to allow us to use margin. They make more money by lending us money. Two questions become apparent with margin; 1) How do we make the best / most efficient use of that borrowed money? 2) If we can use the margin for leverage, how can we use the Port Sim to see accurate results? Let’s say you have a $100,000 account with IB and by using margin you gain an $100,000 in available funds. There are 2 ways to use that extra $100,000; A) Nirvana utilizes the first way to use the extra $100,000: taking more trades in addition to the trades that were taken without margin, all at the same % of the “base” $100,000 account. A perfectly good method, and it works well when you have a large number of somewhat “random” trades available with no way to consistently rank them. If you have a pool of 20 10% of equity trades available on a day 2 things will happen; 1) In the no margin account, 10 $10,000 trades will be taken (1 trade = 10% of $100,000). 2) In the margin account, the additional 10 different trades will be added giving you 20 $10,000 trades (1 trade = 10% of $100,000). B) The second way to use the extra $100,000 is use it as leverage to increase the size of the original 10 trades; 1) In the no margin account, 10 $10,000 trades will be taken (1 trade = 10% of $100,000). 2) In the margin account, the same 10 trades will be taken, but for $20,000 each (1 trade = 10% of $200,000). The critical improvement with ATM is that we can now RANK the trades and LIMIT the number taken. This has can have a HUGE positive effect that we’ve never had before. Here’s a visual representation of the 2 potential uses of margin in ATM; What effect does this have, and how can we measure it using Port Sim? I’ll use the Micro States Method I recently posted for an example. If you’ve duplicated it, you can replicate these results too. I retained all the original settings, allocations, etc., in these examples. Results in Port Sim using Long Only, 1X margin; Note the # of trades: 6,506 and the Avg % Invested: 45.3% I like the stability, consistency, and the Avg % Inv is fairly low - so I want to try it in a margin account. If I simply change the Port Sim to 2X, this is what I get; Note that the # of trades increases to 7,713 (1,207 added) and the Avg % Invested goes to 59.8% The current Nirvana process adds more trades of the same size as the original (X% of $100,000). The key difference is that because of the excellent capabilities of ATM, those added trades may be limited in number, and will definitely be ranked lower than the original set of trades. Before determining how to use Port Sim to use the margin as LEVERAGE, I was satisfied with this increase in performance ($15M vs $5M). That’s no longer true - because using Margin for Leverage really demonstrates the power of ATM. Using Port Sim to simulate using Margin for Leverage is actually quite simple, though currently limited to 2X Leverage. Nirvana may update that to allow us to see various leverage levels, given these new capabilities of ATM…??? To “force” Port Sim to only use the original ~6,500 trades, but take them now at an equivalent X% of the $200,000 available equity; Simply select 2X in the Simulation Settings and then double each of the individual Market State Percentage of Equity settings. This will keep all the statistics referenced to the $100,000 starting balance of the account, and also keep the % of Equity vs $$ available for trading at the same ratio. Ex: if the original % of Equity was 10% for Bull, you now set it to 20%. (20% of $200,000 is still 10% of $$ available to trade) Here’s the result of using Margin for leverage in Port Sim with the same Micro States method; The increased profit is obvious ($181M vs $15M in the standard 2X Port Sim result and $5M in the original 1X). It verifies the substantial value of being able to RANK trades in ATM. As with any use of leverage, pretty much everything is doubled - except the # of trades. DD and Avg % Invested are both doubled, but the number of trades stays close (6,479 vs 6,506 in the original). There will be a cost for the margin that’s not accounted for in Port Sim, but at a reasonable % invested it shouldn’t have a large effect. Seeing these results will definitely have an effect on how I develop methods in the future. I now plan to limit my development to 1X and Long only. That avoids the unknown of being able to borrow for shorts, and makes it easy to use the ATM method an IRA. If I want an ATM method that will end up using margin as leverage in an account, I’ll also lean toward smaller % of Equity allocations and a lower number of trades. Doing this will take advantage of the outstanding ranking capabilities of ATM, while keeping the Avg % Invested after applying the leverage to a reasonable level (lower margin costs). As I’ve said before - we’re all just discovering the power of ATM and all the capabilities built into it. It’s an amazing addition to the Nirvana toolbox! Mark [Edited by mholstius on 3/1/2018 6:17 AM]  Attached file : 00 Rank Order Trades.jpg (126KB - 1282 downloads) Attached file : 01 1X Margin.jpg (175KB - 1349 downloads) Attached file : 02 2X Margin.jpg (181KB - 1296 downloads) Attached file : 03 2X Margin As Leverage.jpg (180KB - 1265 downloads) | |||
| Buffalo Elite   Posts: 603 Joined: 7/11/2007 Location: Braintree, MA User Profile |
re: "Simply select 2X in the Simulation Settings and then double each of the individual Market State Percentage of Equity settings. This will keep all the statistics referenced to the $100,000 starting balance of the account, and also keep the % of Equity vs $$ available for trading at the same ratio. Ex: if the original % of Equity was 10% for Bull, you now set it to 20%. (20% of $200,000 is still 10% of $$ available to trade)" Not sure about this - doesn't 20% 0f $200k = $40k per trade NOT $20k? What am I missing? I know the tot # of trades stayed abt the same but that may be just coincidence based on the length of the backtest? the result may be exactly what you are shooting for - limit the trades to the best ones - but the risk/trade would go up substantially if it is $40 vs $10 (starting numbers, only gets bigger as acct grows) **There is a quick way to test it - lets say you have 20%/trade set for bull. In Port Sim set the Bull timeframe dates as the test period, keep it at a year or so. Then look at the port sim statistics - in the middle under the position size area look at the avg size $ number. If the test period is only 1 year it will be around $20-25k or $40-50k and we'll have our answer. For long test periods this number skews way up obviously. I would but my OT is busy retraining dynamic, cluster NNs! Wish we could PAUSE training like SW to do other things then come back to it (Nirvana - hint, hint) Also in ATM we need to be able to set a MAX trade size for our simulations - there is no way to even trade 10% per trade without massive slippage and effecting the symbol price (hurting your entry price) before getting fully filled on an acct over approx $500k when you're a retail investor. The other option, once your acct grows to those levels, is splitting up your acct over several IB accts and running OT/OV multiple times concurrently. But those are rich folk problems I **hope** we need to address later on BUT I LOVE THE IDEA and hope we can make it work whatever the solution is. You may have nailed it, but Iam not sure so I am asking. [Edited by Buffalo on 2/28/2018 4:09 PM] | |||
| tradermike Elite Posts: 853 Joined: 2/8/2011 Location: Folsom User Profile |
I appreciate your sharing with the community. --tradermike | |||
| mholstius Regular Posts: 76 Joined: 6/15/2011 User Profile |
Hi Bill, Excellent question - and I’m sorry I didn’t explain that further in the post. Nirvana always uses the account starting equity (not margin available) as the basis for calculating the # shares to purchase, given the % of equity chosen. When it’s doubled to 20%, it’s still using the $100,000 account equity for the calculation - not the $200,000 margin available. So, the 20% of account starting equity is 10% of the 2X $200,000 margin available. Here’s a snag of the first few trades in 2003 and you can see that the trades are identical - except for the # of shares being doubled. Hope that explains it… Also, if you ever want to work with the trades in excel and hadn’t already noticed this, here’s a snag of how to export them into excel; Thanks for keeping an eye on what I’m doing. Peer review is important. Mark [Edited by mholstius on 2/28/2018 6:21 PM] Attached file : 00 Allocation Results.jpg (114KB - 1175 downloads) Attached file : 01 Export Trades Hint.jpg (141KB - 1281 downloads) | |||
| Buffalo Elite Posts: 603 Joined: 7/11/2007 Location: Braintree, MA User Profile |
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| Buffalo Elite Posts: 603 Joined: 7/11/2007 Location: Braintree, MA User Profile |
Thinking abt this more and I feel this is a great idea - limit the trades to the best ones. fewer trades, better results. Using only the best trades larger trade sizes make great sense Soooo the question then becomes what is the best trade ranking combo? What ranker/combo of rankers and weighting is most predictive of success? | |||
| John J Regular Posts: 90 Joined: 12/20/2011 Location: Leduc User Profile |
Have you had a chance to check out Lain Bogle's thread here..? http://forum.thenirvanaclub.com/thread-view.asp?threadid=7851&posts=12 | |||
| Eric S. Member Posts: 5 Joined: 12/2/2017 User Profile |
On a related note; in OV I adjust leverage depending on Market States, with good results. In order to get something similar going in OT with ATM, about a week ago I asked Nirvana to look into giving us the ability to adjust leverage with greater granularity. I posed this question: Is there a way in OT/ATM, in Port Sim/Sim Settings/Account Settings, to set leverage at an increment between whole numbers, say 1.5x ( to be able to use decimals in other words), like the percentage levels we can do in OV? Well, good news. Barry recently let me know that the Port Sim Leverage field will allow decimal values in the next PR. Cheers, Eric p.s. What I”d ultimately like to see/suggest (in OT/ATM and in OV) is the ability to have Market State conditions adjust leverage automatically/dynamically. I have been doing that manually in OV (based on market internals and market volatility) with good results (part of the logic being; when volatility rises one should employ less leverage – both for risk management and because increased volatility literally increases one’s leverage). ...Nirvana, Ed? | |||
| Vinay Regular Posts: 70 Joined: 1/18/2012 Location: Planet Earth User Profile |
Originally written by Eseverance on 3/3/2018 1:03 AM
That is good to have. I had made this request long ago along with request for expanding the "Starting Balance" field (which hopefully many of us will eventually need ;-) here . [Edited by Vinay on 3/2/2018 8:08 AM] |
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