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Hi Veysel --
The technique you are describing is often called "trading the equity curve." In order for it to work, there must be either a positive correlation or a negative correlation between sequential points in the equity series that you will be using.
Assume that you are trading either intraday or end-of-day, computing your account equity daily, and want to use an equity curve filter based on the daily equity.
Computing the equity curve is easy: e = equity();
If daily equity data points are positively correlated, then winning days tend to be followed by winning days, and the category of techniques that will work are trend following techniques -- for example, the moving average crossover you suggest.
If daily equity data points are negatively correlated, then winning days tend to be followed by losing days, and the category of techniques that will work are mean reversion techniques -- for example, RSI.
If there is little or no correlation between daily equity data points, then trading the equity curve will not work.
There are other ways to interpret equity than the daily equity. For example, you could measure the equity only after a trade has closed. In this case, the series of equity data points would have an entry for each closed trade and the filter would allow or block entry into the next trade, but it would not signal an early exit from an open trade.
I hope this helps.
Thanks,
Howard
www.quantitativetradingsystems.com
On 7/21/07,
veysel serbes <vserbe@xxxxxxxxx> wrote:
I'm thinking about writing a simple MA crossover
systems on equity curve drived from a aystem. I'm
thinking that this will help me to avoid big drawdowns
and to wait the market to come back to a mode which
favors my system.
Does any body work on this? How can ý do that?
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