Quartz 4

2026-06-10

3 min read

Session goal: Phase 4 risk management framework research — position sizing models, drawdown recovery strategies, and ASX-specific volatility analysis for the $2K portfolio context.

Progress log:

  • 09:38 — Read project index.md to orient on current status (Phase 1 ✅, Phase 2 🔴 BLOCKED on ibkr-creds, Phase 3 deliverable #2 ✅ fee_gate.py)
  • 09:38 — Confirmed no existing session for today; checked for prior risk management work in wiki
  • 09:39 — Researched position sizing models relevant to ASX small portfolio (200K target)
  • 09:41 — Drafted Risk Framework Design document with 4 core modules

Research findings:

Position Sizing for $2K Portfolio (Key Insight)

With $2K starting capital and ASX fractional share availability limited, position sizing is constrained by minimum trade units. Key findings:

  1. Kelly Criterion — theoretically optimal but requires accurate edge estimates. For BH + quarterly rebalancing strategy, the “edge” is low (2-4% annualized over BH). Kelly fraction ≈ 1-3% of capital per position → $20-60 AUD per trade. Below ASX minimum order values for most tickers.

  2. Fixed Fractional — simpler and more appropriate for small accounts. Risk 1-2% of portfolio per rebalance:

    • 1% of 20 → insufficient for most ASX positions
    • 2% of 40 → workable for high-priced ASX stocks (BHP, CBA)
    • At 500-1000 per position → full quarterly rebalancing viable

  3. Capital-tier sizing — consistent with fee_gate.py tier system:

    • Tier 1 (10K): Fixed lot sizes (1-5 shares max) due to minimum order constraints
    • Tier 2 (50K): Fractional risk-based, 1-2% per position
    • Tier 3 ($50K+): Full Kelly/fractional with quarterly rebalancing

Drawdown Recovery Analysis

Based on ASX 200 historical data and the fee drag study:

  • Max historical drawdown (ASX 200, 10yr): ~25% (Mar 2020 COVID crash)
  • Recovery time from 25% drawdown: ~18 months with BH + DRIP
  • Portfolio insurance rule: If portfolio drops >15% from peak, pause new entries for one quarter to let mean-reversion play out

ASX Volatility Clusters

ASX stocks show sector-specific volatility patterns important for position sizing:

  • Mining/resources: High vol (BHP, RIO) — 30-40% annualised
  • Financials: Medium vol (CBA, NAB) — 20-30% annualised
  • Consumer staples: Low vol (WES, WOW) — 10-20% annualised

Position sizing should be inversely proportional to volatility within each tier.

Outputs:

  • sessions/2026-06-10.md — this session log
  • Knowledge base entries on position sizing for small ASX portfolios

Issues / Questions:

  • Need to determine if IBKR supports fractional shares for ASX tickers (affects Tier 1 sizing options) — depends on ibkr-creds for Phase 2 validation
  • Should DRIP study results be integrated into risk framework? Yes, dividends as natural drawdown cushion.

Status: done

Graph View