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                                                   Money Management vs. Trading System


2018-03-06 12:45:58

I have a rotational trading system and would like to modify it with a market screen. I will use SPY as a proxy for the overall market.

Here is what I would like to do:

- Set up a series of moving averages for SPY (let's say 5 of them).
- Score the market based on how many of the MA Spy is above. (Simple weighting scheme like a value of X or Y for each MA exceeded by current value of SPY)
- Example scoring 1 or 0 for two shortest MA (ex. 1 if SPY >= MA) and 2 or 0 for intermediate and long-term MA.
- Given this example, the strongest rating would be 8 and the weakest 0.

Then, this rating would be used to modify number of trades or percentage of funds invested in a particular month. I can handle the SPY screening code.

My question is if this code should go into the original system code or whether it more properly belongs as a money management add. I suspect that it could go either place, but would like to see how it would be used in the money management section.

It is unclear to me when and how money management should be used. I am sure others are unsure on this issue.

Any advice is appreciated.

2018-03-06 16:23:38


Adding to above request:

If I am trading 5 rotational ETFs and screen says only two should be invested in for a particular period, how do I invest 20% of equity in each and 60% in cash?

2018-03-07 03:33:57


Best Answer
If you implemented this in QS language then it should go the system code of course.
Money management scripts can be implemented in C# language only and they would allow you to catch and interact with different events such as (New Period, New Position, Close Position...)

Here are two blog posts regarding rotational trading systems:
Create Your Own Tactical Asset Allocation Strategies
Advanced Tactical Asset Allocation Strategies

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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.