Playing the equity curve

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danZman
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Playing the equity curve

Post by danZman » Sun Oct 28, 2007 7:07 pm

I was wondering if anyone has used a system's equity curve as a variable in trading. For example, if the equity curve goes under a moving average, stop making trades.

I've had systems that stop working well in real trading. At this time, I stop trading them if a new equity high is not made in 12 months (which is pretty arbitrary), and then trade them again when a new equity high is made. Using a moving average or something similar could also be a solution as to when to stop trading a system.

Thoughts?

D

sluggo
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Post by sluggo » Sun Oct 28, 2007 7:31 pm

dan, do you have simulation software that will let you try out these kinds of ideas?

danZman
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Post by danZman » Mon Oct 29, 2007 2:04 pm

Sluggo,

I believe I can do this in TB...haven't tried it yet though. It seems like it would help determine when to stop trading a system when the market changes...and then re-start when/if it changes back. As we know (and I've liked your input on this), markets do change and systems can stop working.

D

Roger Rines
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Post by Roger Rines » Tue Oct 30, 2007 10:20 am

In my previous to TBB life I spent a lot of time on this issue and learned some lessons.
  • Equity Curve control of a trading system works best when the system's volatility is high.
  • Performance from an equity curve where unit size doesn't change as a fraction of equity won't provide the same level of gain, but it won't deliver those scary drawdown periods either.
  • Trade Size based upon the In/Out logic of the Equity-System can make a significant difference in how well you sleep.
  • In all our Equity-System control work, we used End_Of_Day net change values based upon a single unit result. Because the data is based upon an End_Of_Day result, rules for how you deal with open positions adjustments need to be considered before going live. For example, in our Equity_System we use Stop_Close_Only logic to trigger the system's In/Out conditional status. While this sounds simple, what would you want to do during the Open of the Day and the same Bar's Close when the Low or High will always be at or beyond the Bar's extremes? (Think of what happens in Over-Night, and in high-volatile periods).
  • All our experience in developing our equity control has been with portfolio results and not with any of the individual market results within a portfolio. While this has been successful in real trading, I suspect, but don't know, that some of the trade control and management issues listed above will resolve themselves when the equity-control is at the market level and not at the portfolio level.
As time allows I'll be testing more advanced equity control ideas in TBB when I move the Equity-System code over to TBB, and will post more lessons as they appear.

danZman
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Post by danZman » Tue Oct 30, 2007 7:40 pm

Interesting...I'm going to code some stuff time allowing. I made a beautiful stock trading system last year, and it has performed totally different from backtesting...sleeping better with automatic cut-offs is great.

Also, I like this approach when letting others trade my money (I've recently become more risk adverse...to the point where I'm willing to diversify from myself). :lol:

As I recall, I can make use of the LoadSymbol function or something like that. I'll start the project as soon as I finish the current counter-trend stock trading system.

By the way, I was reminded of this project from Larry Williams book on the COT. In a chapter where he was dispelling common market myths on volume...the equity curve charts had moving averages on them. While he never discussed this, it was interesting to me.

Here is a link to setting this up in TBB:

viewtopic.php?t=3869&highlight=loadsymbol

D

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