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Recent contributor said:
> It seems to me, in my limited experience backtesting systems, that
> all systems work, some of the time. So the question is, when do
> you trade the system?
> why can't you trade the system only when the equity curve is going
> up, and not trade when the system is in drawdown? My limited
> research into this looks promising.
Having just read Nassim Taleb's on-line book, "Fooled by Randomness: If
You're So Rich Why Aren't You So Smart?" (highly recommended), at
http://home.netcom.com/~ntaleb/ ,
I'll adapt his illustration:
If you sat x number of monkeys in front of real-time trading monitors, and
the monkeys randomly bought & sold stocks, you might find a few monkeys that
made money on balance, but in almost all cases you would find that given a
long enough trading history , each of the monkeys would have a winning
streak. (Like if they were only trading the last 5-6 years in a bull
market.)
But to apply some-type of equity curve technique & find a winning system is
placing the cart before the horse, to mix metaphors. Epistemologically one
needs to start with a system that has sound trading concepts.
Recently I've seen more items on this list, as well as in various
publications, about trading the equity curve. This indicates to me that
more & more systems are not performing well. And rather than face that
fact, the attempt is to move toward trading the equity curve.
Don't worry: you will succeed. For the same reason that you would able to
"discover" a system that previously worked, you will be able to find a way
to trade the equity curve that also worked in the past.
And just as sure, in 6 - 12 months we'll be seeing discussions on when to
trade the equity curve, and when not to trade the equity curve.
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