November 2019
Beginner
394 pages
10h 31m
English
Content preview from Learn Algorithmic Trading
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PnL-based risk allocation
PnL-based risk allocation is probably the most intuitive portfolio allocation/optimization technique. It says to start all available trading strategies with an equal amount of risk when we have no live trading history. Then, as time goes on, we rebalance the portfolio-allocation amounts based on the average performance of each trading strategy.
Let's say we want to rebalance our portfolio of trading strategy every month. Then at the end of every month, we look at the average monthly PnLs of every trading strategy we have in our portfolio and for the next month, every trading strategy gets risk proportional to its average monthly performance, the best performers get the most risk and the worst performers get the least ...
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