equity MA

[kallie]

Hi

I am looking at when to enter & exit a system. 1 way would be to enter & exit when my equity crosses a moving average (of the equity curve). at the moment I export my results to excel then plot a MA.
It would be great if one could throw a MA on the tradeim equity curve.
8)

[David Samborsky]

Hello kallie,

This is something that we have had a few requests before. Will consider looking at adding this in the future.

[mcdirt]

I just don't get the point of this. I'm familiar with the concept but each time you run a simulation, you are going to get different Equity graphs and MA curves giving random returns within the distributions shown in the Monte Carlo graph. If you run 10 simulations, you may get 5 where the MA is above and 5 where the MA is below. You may enter this week 'cause the MA > Equity and then have to exit next week 'cause MA < Equity.

Surely if you are going to do this sort of thing then you have to do it with a real time, fixed portfolio of stocks, which TradeSim doesn't do, that's the point of TradeSim.

If you do intend to use MA > Equity as an overal risk trigger then how can you test it in TradeSim as it can't be programmed into Metastock!

What am I missing here. :evil:

[David Samborsky]

Hello mcdirt

What kallie is talking about is making a final decision to enter a trade based on the comparison of the current equity and its moving average. It's just another entry criteria added to your existing entry criteria's and will obviously change the sequence of trades taken. The could also be tested using the Monte Carlo analysis.

However there is a not so obvious problem and that the equity points provided by TradeSim are not spaced at equidistant periods of time. This would have to be taken into account when calculating the moving average. To be more realistic it would be neccessary to make decisions based on the open trade equity not just the closed trade equity as currently provided by TradeSim.

[krishnan]

Hello David & mcdirt,
there is a point in what Kallie is trying to get.

Assume we have a trading system fully tested by Tradesim and satisfied. In a real situation
due to limitation of capital one is not able to take all the trades generated by the system.
If the same system is run with Tradesim with high capital to take all trades,then the equity
chart with moving average will give some idea. If the equity is falling then one can conclude
the market condition at that moment is not in favor of the system and do a temporary stop to
trading and when the equity curve reverses start trading. The crossover points can be used as
referenses.

This is my idea only and feel free to comment.

Regards
Krishnan

[tech/a]

David is quite correct,re Trading the equity curve.Nick Radge first introduced me to this form of Money Management.

Everybody has also valid points.

If you have designed a method and tested with Montecarlo and found that the deviation in profits is small it then makes no difference which trades you take as the Testing has shown that random selection of trades will be anywhere between the % of deviation.

We have borne this out in the live trading of Techtrader.Not all possible trades are taken,further the full portfolio is rarely taken(Due to slackness from my part rather than design).

tech

[kallie]

This idea has come up in a number of books & i have tried to test it in a few ways.
What i find is it can reduce the overall profiability of a sytem as you tend to get back in after your system has started to work again.
I suppose what attracts me to this idea is that back testing is not an exact indication of future performance and anything could happen in the future. With survival being critical I think it is important to have a final safety net in place.
Recently my system produced a 15% drawdown when i expected a max12% then turned around. I can expect the variation due to slippage etc. but it made me think 'how long will i keep putting money into this system?'
It really becomes a problem when a system is geared and a drawdown of this nature could be a big problem.
I'm interseted to find out what kind of other equity Money managment safety nets are out there ?
At the moment i cater for 2XAbsolute%Drawdown (from tradesim backtest) but this doesn't stop me trading. and further to this it doesn't get me back into my system.

[Glenn]

Hi David,

This is something that we have had a few requests before. Will consider looking at adding this in the future.

Is the future any closer with this one? :D

Cheers Glenn

[David Samborsky]

Hello Glenn,

As I said previously the biggest problem is using the closed equity which consists of data that does not neccessarily have a fixed period between points. This makes it difficult to accurately calculate a moving average of the equity curve. You really need the open equity curve which plots equity on a bar by bar basis.

[Glenn]

Hi David,

Thanks, I missed reading your post to Kallie.

What about if the closed equity drops a set percentage rather then using a cross of a moving average? A re-entry when the closed equity is above the set percentage.

Be great if this could be tested using the Monte Carlo analysis.

Cheers Glenn

[David Samborsky]

Yes this is possible and worth considering.

[Glenn]

Thanks David,

Yes this is possible and worth considering.

...just one other thing. :)

It would also be good to have an option to change the ExitTrigger on the Open trades at the time (if the equity curve drops a percentage).

ie: if the equity curve drops say 15% then use a 2 x ATR rather then a 3 x ATR trailing stop.

Cheers Glenn