Pulling the plug/MA of equity curve.

Discussion in 'Risk Management' started by elit, Nov 30, 2006.

  1. elit


    How do I know when to pull the plug for the system I am trading?

    I have thought of a method and to my delight I have found that this is a method
    that traders are really using. It was like a heureka for me when I found
    that I had thought out stuff that pro (?) traders are using, although I'm a newbie.
    Well, it probably sounds silly to you! :)

    Anyway, I had been thinking about a moving average of the equity curve, and when
    "price" crosses below a moving average I would put the system on hold, but still
    record what the equity curve would have looked like if traded, and when "price" crosses
    above a certain point I would resume live trading.

    Is this a viable money management solution?
  2. Using an MA on an equity curve like that may sound logical and work on paper, however, the problem is that you will miss out on the upward jumps in the equity curve which would take you above your equity curve MA again coz your system will be disabled UNTIL your equity curve turns up..coz your MA "lags" and returns are erratic..thats been my experience and i welcome other comments...try doing the study yourself on your actual trading results and tell us what you get, you can probably do it in excel
  3. elit


    Yes, that is the risk with the method I can clearly see that now.
  4. My plan is if I lose 50 % of closing equity then I exit all positions and stop trading. I plan to return to trading after 1 year.
  5. See you then. :D