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<FONT face=Verdana color=#800000
size=2>Another interesting way to take decision on the equity curve is to
compare it with the equity produced by a "perfect system".
<FONT face=Verdana color=#800000
size=2>Let's write a perfect system that trades all the tops and bottoms and
compute the composite equity of this system:
<FONT
size=2>
<FONT
size=2>Buy = <FONT
color=#3cb371>TroughBars(<FONT
color=#ff0000>L,<FONT
color=#282828>2)==<FONT
color=#282828>0;
<FONT color=#0000ff
size=2>
<FONT
size=2>Short = <FONT
color=#3cb371>PeakBars(<FONT
color=#ff0000>H,<FONT
color=#282828>2)==<FONT
color=#282828>0;
<FONT color=#0000ff
size=2>
<FONT
size=2>Sell = <FONT
color=#ff0000>Short; <FONT
color=#ff0000>Cover = <FONT
color=#ff0000>Buy;
<FONT color=#0000ff
size=2>
<FONT
size=2>AddToComposite<FONT
color=#0000ff>(Equity<FONT
color=#0000ff>(),"<SPAN
class=173335811-30072002>Perfect equity"<FONT
color=#0000ff>,"X"<FONT
color=#0000ff>,3<FONT
color=#0000ff>);
<FONT face=Verdana
color=#800000 size=2>Then compute the composite equity of your
system.
<FONT face=Verdana
color=#800000 size=2>You can build an indicator that measures the correlation
between your system and the perfect system:<FONT
color=#0000ff>
MySystem =<FONT
color=#3cb371>Foreign(<FONT
color=#ff00ff>"My
system equity",<FONT
color=#ff00ff>"C");
Perfect =
Foreign("Perfect equity","C");
Corr = Correlation(<SPAN
class=173335811-30072002>MySystem,<SPAN
class=173335811-30072002>Perfect,100);
GraphXSpace =
5;<FONT
color=#ff0000>
Graph0= Corr;
Graph0Style = <FONT
color=#282828>1+<FONT
color=#282828>4; <FONT
color=#ff0000>Graph0Color = <FONT
color=#282828>3;<FONT
color=#ff0000>
Graph1=
0.5; <FONT
color=#ff0000>Graph1Style = <FONT
color=#282828>1; <FONT
color=#ff0000>Graph1Color = <FONT
color=#282828>2;<FONT
color=#ff0000>
Graph2=
-0.5; <FONT
color=#ff0000>Graph2Style = <FONT
color=#282828>1; <FONT
color=#ff0000>Graph2Color = <FONT
color=#282828>2;<FONT
color=#ff0000>
Title =
"Correlation between equity <SPAN
class=173335811-30072002>my system and <SPAN
class=173335811-30072002>perfect system"<FONT
color=#0000ff>;
<SPAN
class=173335811-30072002>Correlation
more than 0.5 means that the system is following the performance of the perfect
system.
<FONT face=Verdana
color=#800000 size=2>Waz
<FONT face=Tahoma
size=2>-----Original Message-----<FONT
face=Verdana color=#800000>
<FONT face=Tahoma
size=2> From: Herman van
den Bergen [mailto:psytek@xxxx]Sent: mardi 30 juillet 2002
13:24To: amibroker@xxxxxxxxxxxxxxxSubject: RE:
[amibroker] Equity conditions applied to trading systems
<FONT face=Arial color=#0000ff
size=2>Thanks Dimitris, for this interesting post. You end your post with:
"The codeseem to
operate, although I do not feel so safe adding new trading rules after the
Equity line.
Any opinions/ideas/improvements/comments
?"
<SPAN
class=850233510-30072002><FONT
color=#0000ff><SPAN
class=850233510-30072002>
<SPAN
class=850233510-30072002>Why do you think this way? What is so special about
the Equity() formula? It is just an other way of juggling the numbers. But we
have to be careful with delays; we only know the equity at the end of our
trade ...so there is a two day delay: one day for our primary systemto
simulate our regular trade and one day to respond to our secondary system.
This would be for a reversal system.
<SPAN
class=850233510-30072002>
<SPAN
class=850233510-30072002>There is no difference between processing the price
arrays with an Equity() or any other indicator like RSI() , or who knows what.
A trading system can be used like a "filter". I think we discussed this before
here or on the DLL list where i posted a prototype hbEquity() DLL some
time ago that has a feedback argument (I can email you a copy if you like).
<SPAN
class=850233510-30072002>
<SPAN
class=850233510-30072002>This is not an uncommon technique. A search onthe
net for "Trading the Equity Curve" will show that this was done many years
ago. Here are some link that could be followed up
on:
<SPAN
class=850233510-30072002> <A
href="">http://store.traders.com/-v10-c10-trading-pdf.html
<SPAN
class=850233510-30072002> <A
href="">http://www.sirtrade.com/equity.htm<FONT
color=#000000>
<SPAN
class=850233510-30072002> <A
href="">http://www.libertyresearch.com/book1.htm<FONT
color=#000000>
<SPAN
class=850233510-30072002> <A
href="">http://www.activetradermag.com/article_index_strategy.htm#Sept2000<FONT
color=#000000> <FONT
color=#0000ff>or
<SPAN
class=850233510-30072002> <A
href="">http://www.activetradermag.com/tocs/toc0900.htm
<SPAN
class=850233510-30072002> <A
href="">http://www.purebytes.com/archives/omega/1998/msg01851.html
<SPAN
class=850233510-30072002>
<SPAN
class=850233510-30072002>And you say:
"Shall
we ALWAYS improve a trading system performance with this method ?<SPAN
class=850233510-30072002>"
<SPAN
class=850233510-30072002><SPAN
class=850233510-30072002>
<SPAN
class=850233510-30072002><SPAN
class=850233510-30072002>Absolutely: YES. The trouble comes, just like with a
trend following system when your equity moves horizontal; lots of whipsaws. So
the design problems are exactly the same as with any other trading system. In
fact you should be able to redefine the OHLC arrays with the Equity
and develop a trading system for it, the usual
way.
<SPAN
class=850233510-30072002><SPAN
class=850233510-30072002>
<SPAN
class=850233510-30072002><SPAN
class=850233510-30072002>Take
care,
<SPAN
class=850233510-30072002><SPAN
class=850233510-30072002>Herman.
<SPAN
class=850233510-30072002><SPAN
class=850233510-30072002>
<FONT face=Tahoma
size=2>-----Original Message-----From: Dimitris Tsokakis
[mailto:TSOKAKIS@xxxx]Sent: Tuesday, July 30, 2002 2:39
AMTo: amibroker@xxxxxxxxxxxxxxxSubject: [amibroker]
Equity conditions applied to trading systems
Here is an attempt to use Equity conditions and redefine
trading rules.
The system applies the original trading rules only when
the Equity line is above its 40-day EMA
and stops [with the appropriate order] any trade when
the Equity line falls below its 40-day EMA.
It begins a new trade, the one that the original system
would apply this day, when the Equity line crosses ascending its 40-day
EMA
// the original trading
systemBlevel =13;Slevel
=85;StOcci=100*(CCI(6)-LLV(CCI(6),14))/(HHV(CCI(6),14)-LLV(CCI(6),14));stocci=MA(stocci,5);Buy=Cross(STOCCI,BLEVEL);Sell=
Cross(STOCCI, Slevel); Short = Sell;Cover =
Buy;Buy=ExRem(Buy,Sell);Sell=ExRem(Sell,Buy);Short=ExRem(Short,Cover);Cover=ExRem(Cover,Short);
E1=Equity();EM40=MA(E1,40);<FONT
color=#ff0000>// Equity
conditionCOND=E1>EM40;XB=Flip(Buy,Sell);// preserve the
original buy till the next
sellXS=Flip(Sell,Buy);XSH=Flip(Short,Cover);// preserve theoriginal
Short till the next CoverXCO=Flip(Cover,Short);<FONT
size=2>// Descending and ascending equity cross
conditionsDESCR=Cross(EM40,E1);ASCCR=Cross(E1,EM40);<FONT
size=2>// the new trading rules// How to begin a
tradeBuy=COND*Buy OR (ASCCR*XB);// {original
buy when E1>EM40} OR {a new buy when an ascending cross
occur} Short=COND*Short OR (ASCCR*XSH);<FONT
color=#ff0000>// How to stop a tradeSell=COND*Sell OR
(DESCR*XB);// {original sell when E1>EM40}
OR { a new sell when an ascending cross occur}
Cover=COND*Cover OR (DESCR*XSH);
The code seem to operate, although I do not feel sosafe
adding new trading rules after the Equity line.
Any opinions/ideas/improvements/comments ?
Shall we ALWAYS improve a trading system performance with
this method ?
Dimitris TsokakisYour use of
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