At the very least, putting a moving average below your equity curve can serve as a visual aid. I really like the idea of a paper trade threshold (capital deactivation point) based on something like this. It puts to rest all the mathematical mumbo jumbo about "risk of ruin"...... Just turn the capital off after the system breaks its trend. A second order trend system, if you will.
I did some more tests and took into account only long trades. Profit factor jumped to 12, so all looks fine. Below are two columns: equity at which system starts trading and equity at which system stops. 6644 139029 148005 161540 164928 167537 176618 191658 219674 252243 252243 325535 343050 578245 588746 602922 609376 5346868 5833955 5684624 5974585 5904126 6014544 5951080 6133783 6133818 6228144 5926490 6198918 6180238 7698357 13663358 12809502 14612155 15520695 21030030 22468818 22181975 23021759 25527233 26391617 30158541 30960358 32986908 34352716 32963620 34274135 35268096 34825434 47414823 49289991 50127420 51537168 51501926 53036522 51075946 51905732 51769179 52630936 51516171 51765047 52480652 53460758 53204295 53625793 52176819 63577180 61457201 66883377 67813453 72272528 98568095 99232047 100791376 98152038 97365760 109196273 229534571 245437946 398248552 519205981 551992822 590117824 580683498 580683498 569518391 596721964 580928581 607569581 605838853 630147885 839524038 867220207 824484192 857120808 864196028 864196028 1113576435 1208683164 1318934226 1350159623 2885815396 2487973604 2487973604 2512821595 2490216286 2755426801 2477924112 2774906453 2960012601 3095988352 3092779158 3207769897 3716419245 3932220157 4239473811 4239473811 4135321759 4280141236 4167647357 4341999949 4239591437 4270037223 4203795197 4326448715 4217186977 4336141829 4679910683 5588332038 7019657573 7377874078 7194799992 7295610271 7357921784 7394184841 9797836132 11541024494 15196431707 16715610680 16941803939 17322227555 16838752130 17566501851 17353839466 17520687720 17118003237 17247022731 16941669875 17395455525 16685325775 17759368777 17843747503 18428291101 17456272958 17901008184 20836066593 22645489848 21067493396 21460828851 20730609601 20594063984 16702694493 17452076835 16593647299 17723515369 17766708391 18277231369 17721452510 18405316300 21859897869 22326649059 21203781999 25207728685 24009417079 24612046924 23936475810 25251962343 25092811572 29179372827 24161711495 29120613201 31107081086 31978800984 31270253108 32854784966 35896761487 39632417173 37038468910 38604706701 39182690154 39455840706 38987147928 41410140955 44718366754 47475211046 45099805131 46344926668 45810208147 46373074392 46408863617 47766483867 46177719307 48037260778 49903651208 50281370271 76712717379 64397111069 60034821111 65884793945 64380280568 65623691534 73590661080 78871305743 76224993312 78289234708 78988404741 80242298820 79061876270 83623916083 82213658990 81092642024 83451530744 115933024141 90331323648 102116605500 97390259711 103436533264 104150750006 104150750006 118375902518 120599097045 122644887230 122644887230 126539423435 127607841071 212862985573 235035893431 243242076012 240083194811 232126006844 246363254349 239443523876 232186756088 218260873498 296767691884 454963303214 454848506753 387927765172 458313538487 403698743558 431106843420 400313376447 447196475378 400610312653 419534760760 404549580316 480406927254 423744841924 444709953193 638775622149 672396376750 635355558454 666961942808 662100173465 677154292422 691765911314 686567062691 639868292439 716578948356 658686428403 708644543713 649898609577 703362646479 631892418166 Total amount made by trading this way is negative, why? Below is a column that shows % profit on each trade: 1992.66 9.14 1.58 8.52 14.83 29.06 68.56 2.41 777.43 -2.56 -1.18 -1.06 0.00 -4.84 -0.30 77.48 14.07 35.50 -1.28 10.88 14.27 6.55 -4.04 2.90 36.15 1.70 -0.07 -3.70 -0.26 -2.12 1.38 -0.48 -2.70 -3.33 1.39 36.38 1.57 -0.80 110.20 62.26 6.31 -1.60 -1.92 -2.65 -0.28 33.23 -4.93 0.83 28.86 9.12 113.74 0.00 -0.90 -10.07 6.67 -0.10 15.86 7.81 -2.46 -2.63 -2.36 -1.55 -2.53 7.93 25.61 -2.48 0.85 32.51 31.67 1.35 -2.79 -1.21 -2.30 -1.77 -4.08 0.48 -5.27 16.40 -6.97 -3.40 -18.90 -4.92 0.24 -3.04 18.77 -5.03 -4.75 -2.74 -0.63 -17.20 6.82 -2.22 9.26 -6.55 1.50 -1.19 7.99 -5.00 -1.15 0.08 -3.33 3.89 52.57 -6.77 -2.28 12.14 -3.36 0.89 -1.47 -1.69 2.91 -22.08 -4.63 0.69 13.66 1.70 3.18 66.81 3.49 -3.31 -2.81 -6.00 53.31 -14.71 -11.92 -7.14 -10.42 -3.57 -11.79 43.64 -5.51 -0.73 2.16 -6.80 -8.08 -8.29 -10.16 If I used that % to original starting amount (5000) I would end up with 519313704, much less that system's original 631892418166. How is it possible and how can I use equity curve trading to my advantage?
I wonder why and honestly I'm not sure. Could this be because with trading systems "buy & hold" is better than trend following? Or is it because this trading system hasn't failed yet (last year was awful, but it still makes 50-70 % a year) and equity curve trading makes money only with systems that failed (that is, lost nearly all capital).
Equity curve trading does indeed prevent ruin if you stop trading after a change in equity curve trend. However it can also reduce overall profits if not optimized to your particular equity curve characteristics. Why it didn't work in your back test, I can't know because I can't see what signal you used. However, I'd be much more interested in placing the Wide Tailz trend following signal over it, because I see opportunity all over that chart. I really appreciate your thread because it's a window into the life of an old school universal trend follower. There are other ways, however, to approach the art. My take on the subject is most excellently summarized by a poster by the name of TK (halfway down the page) in the trading blox forum: http://www.tradingblox.com/forum/viewtopic.php?t=7033
Interesting. I also believe that markets change, nice comparison by TK to number of Aces. I optimized all parameters of my system to get about 120000 combinations. I then calculated average MAR ratio for all of them and I'm using parameters that give results barely above that average. If markets change, I have equal chance to be affected positively as negatively.
Interesting. That reminds me of how automakers detune the fuel map on production cars, to keep everything on the safe side. I guess it all comes down to what kind of car you want: a Honda Accord or a boosted race car with gauges all over the panel to keep you from blowing it up!
I think about more as a kalashnikov. Loosly connected parts that work in -40 C (Germans had a problem with their precisely manufactured guns in cold temperatures) and +40 C. Simple, just to get the job done.