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In Murray's Ruggerio's Cybernetic Trading (published in 1977)there is an
example of equity curve filtering of trading systems (I jsut read a similar
article in Active Trader by Joe Krutzinger). Equity curve filtering may be
getting attention now because systems are going bust it is a sound approach
nonetheless.
regarding systems going bust--as I've pointed out in this forum before (not
that anyone should remember it), I think a lot of systems in the equity
markets will bust/are busting becasue they were developed on and traded on
the greatest bull run in historyand in recentl years with amazing amazing
daily ranges. Assuming it doesn't continue for another 20 years (??), those
systems will bust. In the Krutzinger article mentioned above, he uses a
simple by-the-dips, RSI based system. It looks great with or without equity
curve filtering. He might just as well bought every open or every other
open--they systems would still make money.
Those days are over I think.
----- Original Message -----
From: "Michael Berger" <mberger@xxxxxxxx>
To: "OmegaList" <omega-list@xxxxxxxxxx>
Sent: Wednesday, September 06, 2000 7:11 PM
Subject: Trading based on Equity Curve
> ==============================================================
> 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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