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Marlowe wrote:
> I have developed such a system that trades the psudo equity curve.
> You first have to write your system with a simulation of your
> trading rules. This involves computing the phantom trades and the
> subsequent phantom equity curve (PEC). Once the PEC turns positive
> (I use a exponential moving average of the PEC) I generate an OK to
> trade flag which enables the trading rules. My research indicates
> this works on most markets for my breakout system. I don't claim
> that this technique works for all systems.
And it's not at all straightforward to do.
Some time ago I wrote an indicator to experiment with this. Rather
than trying to simulate the PEC in a system, I just ran a normal
system and applied this indicator alongside it. The indicator
tracked the PEC (actually the REAL equity curve of the system) and
also tracked the "modified" equity curve based on the PEC. E.g. if
the PEC was above its xaverage, the indicator added the results of
the next trade to its modified equity curve. If the PEC was below
its xaverage, the indicator ignored the next trade. (Actually I used
"above" and "below" multipliers, defaulted to 1.0 and 0.0. That let
me experiment with a "below" multiplier of -1.0 or -0.5 or whatever
to see what happened if you faded your signals when the PEC was below
its xaverage, etc.) Then I just plotted the PEC and the modified
equity curve to see how the technique worked for that particular
system.
This approach is MUCH simpler than trying to implement the PEC in
your system -- it takes maybe 15-20 lines of simple code, and it can
be applied to any system -- and it will give you an idea whether the
PEC approach will work for your system. I found it DIDN'T work for
almost all systems I tried. It seemed to work best for systems that
go into huge, massive, protracted drawdowns -- but I don't TRADE
systems like that. :-)
Unfortunately I seem to have lost the code for this indicator, but
it's easy enough to recreate if you want to experiment with it.
Gary
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