Depending on your style of trading, you may benefit from modifying your risk profile (lot sizes) in changing market conditions. The moving average of your equity curve helps you spot these changing market conditions.
Some strategies benefit from increasing risk as equity falls below the curve, while other strategies benefit by decreasing risk.
The following movie goes into explaining this in more detail:
Q: How can I test to see if using the Moving Average with my equity curve will help my strategy?
One of our users asked how he could test whether modifying his position size with his equity curve moving average would help his particular strategy. Here is the plan we quickly outlined for him:
Start by creating a new custom parameter of type option called equity curve. You then create three options within that parameter something like:
Then you manually go thru each trade and note where you were at the time relative to the equity curve. Were you currently under the curve? If so, go back to that trade and choose ‘under’ for this parameter’s setting for that trade.
You could create a few new custom parameters of type number on the setup page of your Trade Log. If you just wanted to test the two you mentioned (double or half) you would set up two. Or maybe you want to test four choices, then you could call them:
• PL 0.5
• PL 0.75
• PL 1.5
• PL 2
You could even create matching parameters of type Calculation to figure out the lot sizes these would be on a per trade basis:
• Lot size 0.5 (lots * 0.5)
• Lot size 0.75 (lots * 0.75)
Look at each trade in the Log and look at the under over parameter you set up. If the trade was over, figure out how much you would have made (if it was a profitable trade) or lost (if it was a losing trade) if you had used 1.5 the lot size, and also if you had used 2.0 times the lot size.
If the trade was under, figure out how much you would have made (if it was a profitable trade) or lost (if it was a losing trade) if you had used 0.5 the lot size, and also if you had used 0.75 times the lot size.
If the If the trade was on the equity curve, simply enter the same profit or loss you actually realized in all four parameter places.
You can use the Calculator to see what that PL would be, based on the theoretical lot size you would have used. On the Trade Plan tab of the Calculator, enter the currency and profit or loss in pips, then the theoretical lot sizes and the $$$ results will be shown.
As a result of your conscientious hard work to set everything up, you will then be able to go to the Analysis tab of the Trade Log and look at the bottom line of each parameter – you will see the results of all approaches in the total for the $$$ at the bottom.