Comments on Milk Trader: Trade your Equity Curve

Hi..I have a trading system that I input manually ...

2009-12-20T22:39:33.438-08:00

Hi..I have a trading system that I input manually into EXCEL and have a couple of MA which are inserted as a trendline feature. Can you tell me how I can make this an Exp MA in Excel.? Thanks

As a matter of fact if you even wish to optimise m...

2009-11-23T06:48:12.821-08:00

As a matter of fact if you even wish to optimise more.. you can use reverse signals when the EMA's are pointing in reverse direction :)

Magnificient article and comments.. Optimisation ...

2009-11-23T06:46:16.460-08:00

Magnificient article and comments..
Optimisation of the equity curve indeed is important plus the Martingale method is damn interesting.
I myself tried this.. although i havent implied it yet to my trading but i will..later.
Suppose you have a decently rising equity curve with up-n-down channels...See attached image..http://yfrog.com/0requitycurvej
You can use two EMA crossover(I've used 10 & 20)but you can take different values according to your chart.
Continue to use the trading system when the shorter EMA advances above the longer EMA & stop using the EMA cross in other direction.
This can be done with any other lagging indicator too.. but i used EMA for simplicity.

martingale strategies hardly strike one as the hal...

2009-09-25T02:42:05.758-07:00

martingale strategies hardly strike one as the hallmark of prudent money management. If there is one single rule of thumb that has served me well over 20 years in the business, "never increase your losers" (whether expressed in terms of individual trades or as a % of equity curves) would be it. Leaving aside fancy math, if one still wanted to pursue martingale strategies (based on some kind of mean-reversion or other similar statistical reasoning), then a hard-and-fast monetary loss limit should be set in advance as a floor for one's equity curve. The lesson of the last 2 years is that increased macro risk has resulted in lower diversification across markets and instruments, the latter being categorised digitally as risk averse or risk seeking. Under these conditions, portfolio diversification assumptions (which underpins equity curve mechanics) have to become more prudent, since - as more than one market observer has aptly put it - "it all becomes one trade" (risk-averse or risk-seeking). Lower diversification means in turn that drawdowns and loss streaks increase (as if one had just one position on) and in turn require a higher equity risk capital allocation.

Milk, for a system that trades often, try taking a...

2009-09-24T20:00:06.874-07:00

Milk, for a system that trades often, try taking a rolling 20 trade average of the Win% plotted over the total average.

Also look at the rolling 20 day average of the average trade plotted over the total average.

Use that to trade the equity curve. TraderStudio is only software I know that will let you turn the system off and on while still tracking everything as if it were never turned off.

Martingale is a probability theory and is commonly...

2009-09-24T12:55:55.404-07:00

Martingale is a probability theory and is commonly used to refer to the gambler who always doubles his bet after losing. In a coin flipping game, he will eventually win. But he must have unlimited funds.

If were to apply Martingale to trading an equity curve, you would double your contracts when the equity curve shows a decline. Not recommended by those whose aim it is to accumulate capital in their trading accounts.

Sorry for asking, but what is a "martingale&q...

2009-09-24T10:36:34.943-07:00

Sorry for asking, but what is a "martingale" strategy? Is it a "St. Petersburg Paradox"-like strategy, or does the term refer to martingales in probability theory?

Yes, you could use either martingale or anti-marti...

2009-09-24T10:05:30.129-07:00

Yes, you could use either martingale or anti-martingale without that much programming wizardry. You can also place a system stop limit at a certain level, and 'scale into winners' if the system is steadily increasing its equity.

I agree that there are problems with 'missing out' on the big winner because you're using a lagging indicator (basically every technical indicator).

You can use your system's equity curve in a wide range of ways. As a money management tool, it may have some issues. As an indication that something has gone terribly wrong, maybe more useful.

I guess what you are saying is to trade a martinga...

2009-09-24T09:37:41.873-07:00

I guess what you are saying is to trade a martingale or anti-martingale strategy. I am not sure I would always agree with that as you'll probably find that there is little serial correlation between your trade outcomes (in any case you'd probably want to measure that serial correlation). If you take Trend Following as a system, you would have a large winning trade "paying back" for many small losses - and you don't want to miss that trade! Whci you could do with trading your equity curve. I'd really recommend Raplh Vince on Money Management/Allocation for automated systems trading. He touches on that aspect of wheteher to trade equity curve + serial correlation of trade outputs. It is very good in general (some hail it as one reference in Money Management).