I recently conducted a poll to see how many #setups the average #trader employs.
Overall, four setups came out slightly ahead; let's look at why this can be useful to a trader.
Expand to know how to smooth out your equity curve:
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Overall, four setups came out slightly ahead; let's look at why this can be useful to a trader.
Expand to know how to smooth out your equity curve:
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https://twitter.com/GoshawkTrades/status/1611135099663179777?s=20&t=Qe6NUGNr--EZQ8xBnvCq3w
Let's start with positive and negative correlations because they're crucial.
A positive correlation is a relationship between two variables that both respond positively to the same stimuli.
A negative correlation (which we will use) is the inverse(+-)
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A positive correlation is a relationship between two variables that both respond positively to the same stimuli.
A negative correlation (which we will use) is the inverse(+-)
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If you currently have four setups, we will need to ensure that they have been backtested and forward tested over a large enough set of historical data to prove that your setups have an edge.
We then can classify them. Assume we have two trend and two mean reversions setups.
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We then can classify them. Assume we have two trend and two mean reversions setups.
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This will enable us to construct a portfolio of these setups that can cancel out each other's drawdowns, resulting in a smoother pnl curve.
But how exactly?
We will employ setups that are distinct from one another, ideally in various markets or tickers.
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But how exactly?
We will employ setups that are distinct from one another, ideally in various markets or tickers.
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Example:
Trend ES Market: Great in trends however drawdowns in range-bound markets
Mean reversion CL Market: Great in range-bound price action or extremes however terrible in trend days
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Trend ES Market: Great in trends however drawdowns in range-bound markets
Mean reversion CL Market: Great in range-bound price action or extremes however terrible in trend days
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Both of these setups can then be evaluated in parallel to determine if they help offset some of the drawdowns of each setup.
Combining these two systems allows you to potentially profit in a variety of market contexts, resulting in a more consistent equity curve.
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Combining these two systems allows you to potentially profit in a variety of market contexts, resulting in a more consistent equity curve.
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It's important to note that no single #trading system will work perfectly all the time, and a portfolio of systems is not a guarantee of consistent profits. However, it can be a helpful way to manage risk and potentially increase the overall stability of your #portfolio
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I hope this helps you understand how you might smooth out your equity curve with the right implementation of multiple systems in #trading.
Be sure to ♥️ / RT / Follow if you enjoy this content.
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twitter.com/GoshawkTrades
Be sure to ♥️ / RT / Follow if you enjoy this content.
🛑
twitter.com/GoshawkTrades
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