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> : only take trades when the system's equity curve is above a moving
> : average of it's equity curve.
> This is not going to work. It's the old question of : which came
> first, the chicken or the egg? Gary covered this in detail before
> but essentially, using this filter on an equity curve changes the
> equity curve,etc.
That's not quite the problem. You run a "phantom" equity curve,
unchanged by the filter, to decide if you're above or below the
equity curve.
The problem is that you take all the losses that drive you down below
the MA of the EC, and then you DON'T take all the wins that dig you
out of the drawdown. For most systems, with a mix of wins and
losses, this is a net loss. Systems that go into huge, extended
drawdowns could benefit from this approach. For example, a simple
"buy the dips" system does great while the market is going up, and
gets killed (for a very long time) when the market goes down. An
equity curve filter could act as a "down market filter" to prevent
the system from doing so badly. But I believe it's a poor way to
handle the problem.
Bottom line, I think any system that benefits from an equity-curve
filter is probably a mighty lousy system. I wouldn't trade it
without the filter, and I doubt it's all that great WITH the filter.
I'd rather keep working until I found a system that does well WITHOUT
the filter.
Gary
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