166 lines
3.8 KiB
Markdown
166 lines
3.8 KiB
Markdown
# Risk Management Architecture
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This document describes the risk management system.
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## Risk Management Components
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```
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Risk Manager
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├──► Pre-Trade Checks
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│ │
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│ ├──► Position Sizing
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│ ├──► Daily Loss Limit
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│ └──► Portfolio Allocation
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│
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├──► Real-Time Monitoring
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│ │
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│ ├──► Drawdown Monitoring
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│ ├──► Position Monitoring
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│ └──► Portfolio Monitoring
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│
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└──► Stop Loss Management
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│
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├──► Stop Loss Orders
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└──► Trailing Stops
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```
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## Pre-Trade Risk Checks
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Before executing any trade:
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1. **Position Sizing Check**
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- Verify position size within limits
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- Check portfolio allocation
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- Validate against risk parameters
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2. **Daily Loss Limit Check**
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- Calculate current daily P&L
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- Compare against daily loss limit
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- Block trades if limit exceeded
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3. **Drawdown Check**
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- Calculate current drawdown
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- Compare against max drawdown limit
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- Block trades if limit exceeded
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4. **Portfolio Allocation Check**
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- Verify total exposure within limits
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- Check per-asset allocation
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- Validate diversification requirements
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## Position Sizing Methods
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### Fixed Percentage
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```python
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position_size = capital * percentage
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```
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### Kelly Criterion
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```python
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f = (bp - q) / b
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position_size = capital * f
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```
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### Volatility-Based
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```python
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position_size = (capital * risk_percentage) / (stop_loss_distance * price)
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```
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## Risk Limits
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Configurable limits:
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- **Max Drawdown**: Maximum allowed drawdown percentage
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- **Daily Loss Limit**: Maximum daily loss percentage
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- **Position Size Limit**: Maximum position value
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- **Portfolio Exposure**: Maximum portfolio exposure percentage
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## Stop Loss Management
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### Stop Loss Types
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- **Fixed Stop Loss**: Fixed price level
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- **Trailing Stop**: Adjusts with price movement
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- Percentage-based: Adjusts by fixed percentage
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- ATR-based: Adjusts based on volatility (Average True Range)
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- **Percentage Stop**: Percentage below entry
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- **ATR-based Stop**: Based on Average True Range (volatility-adjusted)
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- Automatically calculates stop distance using ATR multiplier
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- Adapts to market volatility conditions
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- Configurable ATR period (default: 14) and multiplier (default: 2.0)
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- Works with both fixed and trailing stops
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### ATR-Based Dynamic Stops
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ATR-based stops provide better risk management in volatile markets:
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```python
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stop_loss_manager.set_stop_loss(
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position_id=1,
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stop_price=entry_price,
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use_atr=True,
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atr_multiplier=Decimal('2.0'),
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atr_period=14,
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ohlcv_data=market_data,
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trailing=True
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)
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```
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**Benefits:**
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- Adapts to market volatility
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- Tighter stops in low volatility, wider in high volatility
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- Reduces stop-outs during normal market noise
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- Better risk-adjusted returns
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**Calculation:**
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- Stop distance = ATR × multiplier
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- For long positions: stop_price = entry_price - (ATR × multiplier)
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- For short positions: stop_price = entry_price + (ATR × multiplier)
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### Stop Loss Execution
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```
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Price Update
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│
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▼
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Stop Loss Check
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│
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├──► Stop Loss Triggered?
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│ │
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│ └──► Execute Market Sell
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│
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└──► Update Trailing Stop (if applicable)
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```
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## Real-Time Monitoring
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Continuous monitoring of:
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- Portfolio value
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- Unrealized P&L
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- Drawdown levels
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- Position sizes
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- Risk metrics
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## Risk Alerts
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Automatic alerts for:
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- Drawdown threshold exceeded
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- Daily loss limit reached
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- Position size exceeded
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- Portfolio exposure exceeded
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## Integration Points
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Risk management integrates with:
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- **Trading Engine**: Pre-trade validation
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- **Order Manager**: Position tracking
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- **Portfolio Tracker**: Real-time monitoring
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- **Alert System**: Risk alerts
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