Position sizing for backtesting

[ek-ex]

When setting a value like cash=10000, what is the position size used per trade? Is it always fixed to $10,000, or its using the max account value at the time of the trade?

Backtest(GOOG, SmaCross,
              cash=10000, commission=.002,
              exclusive_orders=True)

I think this will have impact on how the ratios like the Sharpe are being calculated.

TIA and cheers,

[iimka]

The position size depends on whether the size function is used in self.buy() or self.sell(). For example, if you use self.buy(size=0.63), it means you are trading 0.63 times the available cash in your account.

[ek-ex]

Thanks, but this does not answer what is the behavior when setting cash=10000. Does that mean that it will always allocate $10,000 for each trade regardless the account size? Or does it start the account at $10,000 and always allocate the total account size per trade.

[iimka]

Setting cash=10000 simply initializes the account with $10,000 at the start. As the account balance changes, the amount of capital/size used for each trade is controlled by self.buy(size=...).

If you want to trade with $10,000 each time, I haven't tried that (since using a percentage of the account balance for trading seems more reasonable than a fixed amount as the account balance increases).

However, I guess we can use the closing price of the previous bar to calculate the number of shares that can be bought with 10,000, and then put that into self.buy(size=...). Although there may be some discrepancies, it should be close to trading with 10,000.

Day 0: Cash = 10000
Day 1: self.buy() Cash = 0 StockPrice = 1 Shares = 10000
Day 2: Cash = 0 StockPrice = 1.2 Stock = 10000
Day 3: self.close() Cash = 12000 StockPrice = 1.2 Stock = 0

Day 4: self.buy() Cash = 0 StockPrice = 2 Shares = 6000
or
Day 4 self.buy(size = 10000/2) Cash = 2000 StockPrice = 2 Shares = 5000

[ek-ex]

Follow up question: is the Buy&Hold calculation using the same size as the strategy? Or does the buy&hold utilizes the whole account size?

[iimka]

The calculation for Buy & Hold disregards the account size and instead focuses on the stock price. Even if your initial capital is zero and the stock price is high, the Buy & Hold calculation will still yield a number.

[iimka]

You can refer to the following code.

class SmaCross(Strategy):
    n1 = 10
    n2 = 20

    def init(self):
        close = self.data.Close
        self.sma1 = self.I(SMA, close, self.n1)
        self.sma2 = self.I(SMA, close, self.n2)

    def next(self):
        if crossover(self.sma1, self.sma2
and not self.position.is_long #<--------- Add this code to all opening conditions.
and not self.position.is_short #<--------- Add this code to all opening conditions.
):
            self.buy()
        elif crossover(self.sma2, self.sma1
and not self.position.is_long #<--------- Add this code to all opening conditions.
and not self.position.is_short #<--------- Add this code to all opening conditions.
): 
            self.sell() #<--------- If you use 'self.close()', you need to delete the entire closing code, or add a line of code with False to the closing conditions.