Fw: Limited life span of mechanical systems?

["Kent Rollins" <kentr@xxxxxxxxxxxxxx>]

Forwarded by request:
----- Original Message -----
From: <LScharpen@xxxxxxx>
To: <kentr@xxxxxxxxxxxxxx>
Cc: <omega-list@xxxxxxxxxx>
Sent: Sunday, July 14, 2002 4:01 PM
Subject: Re: Limited life span of mechanical systems?


In a message dated 7/14/02 11:22:47 AM Pacific Daylight Time,
kentr@xxxxxxxxxxxxxx writes:

<< The equity curve filter does work, you Lucky Bastard.  All you do is
 maintain a hypothetical curve in which the system takes all trades.  This
 curve is the one you create a moving average against.  It only generates
 signals when the equity curve is above the moving average.  The real equity
 would then be generated by TS or whatever vehicle you're testing with.  It
 requires more programming and that's why some people don't understand it,
 but it does work and is a valid technique.
  >>

Let me put a dog in this fight.  I've been aware of using some sort of
equity
curve filtering of a trading system for some time but never really sat down
and gave it a serious look myself.  After this recent thread, I decided I'd
take a look .... not a 'serious' one yet but enough to get my feet wet.  I
ran the filter on data for the ODDBALL system.  This is a system that most
folks on this board are at least aware of and it provided  a concrete
example.  I  looked at what happened if trades were not taken if the equity
curve was BELOW a moving average calculated for the 'standard' system.   I
did the calculation for a 10 trade average and for a 20 trade average.   For
the 10 trade average, the filter dropped the current equity by 40% and the
20
trade average filter dropped it by 38%.  The data covered the time period
from 12/9/1999 to the present.  It should be no surprise that I wasn't
impressed by the value of an equity curve filter.  From the gist of the
thread, though, I get the impression that some folks DO find it 'impressive'
and I'd sure like to hear some specific comments on their experience.

BTW, it looked to me like what happens is that the trade that triggers the
move BELOW the equity curve average is a loser of some magnitude (often
large) but gets included because the equity HAS to fall below the  average
curve before it tells you to 'stop trading for now'.  And on the other end,
the trade that triggers the move of the equity ABOVE the moving average is a
winner (often BIG) which does NOT get included in the 'filtered' equity
curve.  I haven't looked at this in much detail but 'anecdotally' it seems
to
work  that way in practice.

Lee Scharpen