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Trading the Equity Curve

by QuantShare, 2899 days ago
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While backtesting a portfolio or trading system, trading signals and position sizing rules are defined at startup and cannot be changed or updated dynamically during the backtesting process. The money management tool allows you to create scripts for different events that are executed during the backtesting and therefore it allows you to interact and dynamically update portfolio settings and rules.

This money management script, for example, tracks the performance of the portfolio for the previous year (from the equity curve) and reduces the exposure and the maximum number of positions in the portfolio when the performance metric drops below zero. The active positions are scaled using a market-at-open order, which means that a scale-out order (Sell 50%) is generated for each position of your portfolio.

When the portfolio gain becomes positive (One year rate of return of the equity curve is higher than zero), the default portfolio settings are restored (100% of money invested and the original number of position is set).

Here are some other examples of money management scripts:
Capital Allocation based on the Expected Market Volatility (VIX)
Money management to Reject Trading Positions Based on their Past Performance
Adaptive Trading System - Percent Winning Trades for the Last N-Days
Adaptive Trading System - Minimum Percent Winners and Percent Invested

The different strategy settings (Portfolio equity curve performance, exposure and number of positions) can be optimized using the "Optimize" variable of the "OnStartSimulation" event of the money management script.
For more info, read this post:
Money Management: Optimize a trading system


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Type: Advanced Money Management

Object ID: 1073


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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.