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What parameter responsible for Equity curve shape in Optimization Report

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What parameter responsible for Equity curve shape in Optimization Report

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  #1 (permalink)
Moscow Russia
Posts: 1 since Sep 2021
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Some strategies that have best Net Profit value had not good equity curve shape. Bad equity curve shape: means flat for long period of time in earnings, maybe 1-2 years, Please look at picture. And in other side I can choose strategy with a little less Net Profit, but with very good shape of equity curve, that can make money almost every month. Look at picture.
When I choose strategies I would like to look in Optimization report data to choose strategies with good equity curve, what parameter responsible for that? I have a lot of different settings for strategies and look at every equity curve can take a long time, so better understand what parameter in Optimization report can help me to choose right strategie with good equity curve shape.

What parameter responsible for Equity curve shape in Optimization Report??

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  #2 (permalink)
Posts: 23 since Aug 2012
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Generally spoken one should avoid curve fitting with over-optimisations.
Also markets tend to change with the time, so one strategy may work well
for a time and not so well for another timeperiod.
These 2 exemples look for me similar at the end, they are flattening
and look quite near their tops I would guess.
One needs to take some risks to enter rather near the beginning of a trend,
when one can feel that there is potential of growth, even if it doesn( look
well established yet.
And avoid to enter near the end of a move when all is already well established
and it seems that eveything is sure for a wonderful future....

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  #3 (permalink)
Sydney NSW Australia
Experience: Intermediate
Platform: TradeStation, Oanda
Trading: Forex, index futures
ursus's Avatar
Posts: 78 since Jun 2020
Thanks: 5 given, 81 received

That's true, good looking equity curve is more often than not the result of overfitting. The best is the system that produces more or less similar equity curve over a wide (reasonably wide) range of parameters. In TradeStation the third tab of the report, Trade Analysis, has a few parameters that are helpful - standard deviation, coefficient of variation, time between new highs etc. But it is probably better to export trades to Excel and play with stats. Then again, the curve of the past is not very likely to repeat itself in the future.

The solution to long flat periods and drawdowns is not in the system, in my opinion, but in money management. Reduce the size when the system is flat or going into the drawdown and push when it is doing well. How - a million dollar question, literally.

One way is to trade equity curve. So when the curve crosses below its moving average, or if it breaks below the lowest low of the last N trades you stop trading it live and keep track of its performance. When it gets back to being profitable you "switch it back on".

Another way - Fixed Ratio money management. Especially useful for small accounts, as the size goes up and down pretty aggressively, depending on the profits.

Third - diversification. Probably the simplest. You combine several systems with ugly equity curves, and the corners get smoothed out.

Hope this helps.

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