What is the ideal equity curve?

Trading Discussion
1

Hi all.

Well, my question is so simple: what do you think is the ideal equity curve?

  1. lossers of -R and winners of 2 to 4 R (with ocassionally some of 5-6R) with 50% losers and 50% winners approximately

  2. lossers of -R and winner of 10-20R with 80% losers and 20% winners.

Both systems would be profitable, #1 give more number of trades (more commissions) but if you miss a trade you have another one next day or next 2 days. Also the number of consecutive losers can be small.
With #2 system the number of winners is smaller, so psychologically it could affect you. You must know how to hold the position when you have a winner. And you will have more probability of large series of losers. And if you miss a winner, it could be awful. But the number of trades is smaller.

What do you think is better?

2

You ask interesting questions, Marco.

(I’m not sure why you’ve posted them in “Free Forex Systems” rather than in “Forextown”, but I’ll try to have it moved).

For many (perhaps for all) of us, this would be a dream come true. I don’t know anyone who achieves it. I don’t even know [B][U]of[/U][/B] anyone who achieves it.

This one I instinctively wouldn’t wish for, myself. I see, of course, that it could be very profitable, but trading realities predicate that a 20% win-rate is [I]extremely[/I] difficult to handle and calls for very small position sizes. The main problem [I][U]isn’t[/U][/I] the longest foreseeable losing run (though that’s alarming enough: one would need to allow for encountering a run of about 43/44 consecutive losers cropping up somewhere in the next 1,000 trades): it’s the longest losing [B][U]patch[/U][/B] (and the probability of encountering a losing patch financially equivalent to that number of consecutive losers is around five to six times as high!). One of the key problems, and one of my reasons for avoiding systems with figures like this, is that when you hit a long losing patch, it’s [I]impossible[/I] to decide whether you’re “just having a predictable bad run” or “the system has stopped working”. I’m not willing to trade a method under which that problem arises. I know too many people who had had disasters with them.

The first, by far. But I don’t expect ever to be able to achieve it, myself. If I had backtested results showing it was possible, I’d assume that I’d made mistakes somewhere along the line in the backtesting parameters.

Just my own perspective. Others will doubtless make different observations … :wink:

3

Hello Marco,

may I say that Lexy’s contribution is excellent, in my humble opinion, so I would not enter this field,

as she has a really great grasp of statistics, expectancy, and all the rest…

My only concern is this: if you look at the picture below, it shows a typical official forecast model

with GDP (US) growth projections along a curve…


What equity gain projections and forecasting models always fail to do is to account for not only

the unknown but for irrational disturbance to the model… In other words, averaging out is key

to forecasting but it is very reductive, for it only represents a ‘best outcome’ scenario.

Can I ask a question of you?

Where are you at in terms of coming up with a trading style or plan? Do you know what sort

of currency time-frames, pairs, and market conditions you would like to trade?

4

thanks for your opinion. what then do you think are reasonable numbers (winratio, rrr…)? or more realistic should I say…

5

well I trade forex pairs in the D1 and H4 timeframes. the style I like most is swing trading. I am doing now researching on my trading system, trying to figure out one fitting my psychology.