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Daniel,
Good question! - you are on the right track.
Often system raw profit and drawdowns are correlated. Increase one
and the other increases with it. Balance between the two is the key.
A smoother trading equity curve is preferable to any increased profits
in the real world of trading. Smaller profits with minimal drawdowns
equates to better profits at the end of the year, by virtue of being
able to invest a larger percentage of one's capital into the trading
strategy.
If you are managing a fund, large drawdowns will scare off your
investors. There are plenty of examples of this around.
Ways to smooth a trading equity curve are:
1) Shorter trades/smaller profits - use a tighter stoploss or more
aggressive exits for this.
2) Profit-taking (according to market conditions - not targets), used
in conjunction with #1.
Take note that as you decrease the duration of your trades, the
transaction costs component of your trading
(slippage/spread/brokerage) will increase, eroding your final profits.
To give an example of the above with my own trading system:
http://users.bigpond.com/prominex/pegasus.htm
I introduced both more aggressive exits and a kind of profit-taking
into Pegasus, back in 2002.
The overall raw profits were decreased, but the drawdowns were also
reduced dramatically. The end results meant a smoother equity curve,
and better sleep at nights.
jose '-)
--- In equismetastock@xxxxxxxxxxxxxxx, danielofsacramento <no_reply@xx
..> wrote:
> Hi Everyone!
>
> Does anyone have any ideas on various ways/Systems/etc. to smooth
> out Equity Curves?
>
> If anyone can help, I would greatly appreciate it!! I have some
> Metastock Goodies that I can offer in reciprocation.
>
> Feel free to email me @ danielofsacramento@xxxx
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