Equity curve account/trade management

Discussion in 'Risk Management' started by mrbluelegs, Jan 1, 2008.

  1. How common is it for traders to manage their account activity with a moving average of the equity curve of trade set ups and account balances. Say the system calls for moving from live trading to sim mode when the 10 day moving average of your equity curve moves below tolerance and back into live mode when sim goes positive?
  2. Surdo


    I strongly suggest you stay in "SIM" mode all the time.
  3. MGJ


    The idea goes by the name "trading the equity curve" or "playing the equity curve". You could search for it on this site and other trading related sites. It is frequently discussed.

    Allow me to make a gentle suggestion: Give other names to the two "states" of your idea. Instead of calling them LIVE and SIM, how about calling them
    • Take_New_Signals_at_100%_Position_Size
    • Take_New_Signals_at_0%_Position_Size
    They represent the same ideas (Do trade, don't trade), but they encourage you to think about other alternatives.

    For example, you could modify the idea by modifying the numbers. Instead of 100% and 0%, you could change it so the two states take signals at 100% and 50% position sizes. With this modification you take every single trade, but when the equity curve is cruddy, you only trade at half-size. This way you'll never miss a trade, and in particular, you won't miss that huge enormous +75 Rmultiple winning trade that you'll be bragging about for months to come.

    For another example, you could expand beyond just two states. Instead of 100% and 0% (or 100% and 50%), maybe you could have three states: 100%, 50%, 0%. Or even more.

    I suggest you expand your thinking beyond the simple binary on,off mental model.
  4. Thanks for nothing.
  6. Pita


    For me this is a very usefull and important tool though it makes more sense to chart/calculate it when you trade certain methods or systems with predetermined entry/exit scenarios. For discretionary trading it might influence you to get hesitant when certain levels are reached.

  7. If you truly have a decent performing automated system then using the mov avg of the equity curve will at best provide a fail safe stop to all trading.

    I have checked this out and only longer mov avg are really worthwhile IMHO for just that purpose.