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Trading Equity Curve

Member Since Oct 29, 2017  10 posts Biff (Redwingfan) Mar 14 2018 at 06:59
(Another post I have posted that might be of interest)


I am going to cover in this journal entry the reasons I believe it is important to have strict rules for trading and also I'm going to cover trading your equity curve. The link is to a Futures Magazine article about trading your equity curve if you are unfamiliar with it.

I believe one of the big improvements to my trading was when I put together a list of rules that were so strict that even if I gave the rules to someone and we went our separate ways for a year, when we got back together 52 weeks later, we would have went long the same currency pairs and went short the same currency pairs at the exact same moments through the entire 52 weeks. This is the benefit I get out of Quantitative trading, but the benefit isn't quite what you would expect.

During the first 4 years of my Quantitative trading journey I was hell bent on finding the secret to what tipped me off to a sharp rise or a sharp fall in a currency pair. I was mildly successful but was not 'life changing' successful. Then I had a epiphany.
(Side thought -I think about this a lot-: The great thing that I love about trading is that thoughts/ideas/epiphany's are had by most every trader and I always wonder when I have one, how many thousand's of other traders before me had the exact same one but separated by years and decades. Even though there could have been articles written on the very subject that I did not happen upon, that moment I discovered it on my own was a thrill and I'm sure for every other trader it was as well. It is one of those moments you pull the car over and start writing down notes)

Back to my epiphany...Anyway, I thought of all of those ideas that I had tested before and discarded because they didn't move up consistently or down consistently and what if there was one I discarded that just churned over and over and never went anywhere.

So I went back to all of my notes and spreadsheets I had saved over the years (I do not throw anything notes related or trading tests related away) and looked for the method that went absolutely nowhere.

Now comes in the method of trading your equity curve. The great thing about FF.com is the trade report and trade graph that they offer up for both demo and live accounts. Now if your trading is very random and all over the place it might not help but you can choose different time frames just in case you were consistent for a week or two and want to evaluate those time frames.

The article attached covers a few thoughts on trading your equity curve and is very basic so if you know all about it, you will not read anything life changing. A few thoughts I have about it that might help guide are...
#1 Come up with rules and create demo account #1 and make that Model #1. Get to know Model #1 like the back of your hand. You should know everything about it. Know the stats, know the trends, etc.
#2 Come up with rules on trading Model #1 You might trade against it, you might trade with it. You might just step aside

I know with my Model #1, it only moves so far in a certain period of time. It bounces back and forth and churns. I set it up that way. I trade against it on exhaustion and I trade with it on under performance.

Hope this helps and gets you thinking of the importance of trading with rules and maybe some ideas on trading your equity curve.

(Watchouts on trading your equity curve. Be careful when evaluating your drops in Model #1. It could be because you had extreme slippage or trading fees or huge spreads.)

You cannot have out of the ordinary returns by trying ordinary things. Do you think Goldman Sachs uses the same indicators you use?

Member Since Jul 09, 2019  23 posts lavis_book Jul 16 at 08:00
Equity curve basically shows you the performance of a trading account, with positive and negative slopes. The positive one shows profits and the negative slope indicates losses. Equity curve looks somewhat similar to a stock chart. It is a very reliable and quick way to know about how your particular strategy has worked. Also, with the help of equity curves you can relate and compare different strategies and their risk and returns.

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