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Thanks for pointing that out. I used my own excel spreadsheets and fxspyder which both work on NAV and not cash. TradingBlox uses NAV and I modeled my work on that.
I made the mistaken assumption that every platform would be similar to the ones I used.
Interesting. I had never thought of this but it makes perfect sense. A good way to plot an equity curve then would possibly just be to plot your balance every day/period,...regardless of whether you're in any trades at that point.
I think the way Ninjatrader plots equity curves is fine for day trading because your account is cash settled every day, but for swing or position trading it's not as effective.
One way to test the smoothness of the equity curve is divide your ending equity by the standard deviation of your equity, calculated using a bar-by-bar array of equity values.
I'm content with good old sharpe ratios. By smoothness of equity curve you mean a low standard dev of returns and that is half the equation.
The big thing though to a sharpe ratio is you can compare your strategy against the sharpe ratio of buy and hold or short and hold the index or whatever data you are looking at over the same time period to see if you really have anything. I think many of times people find strategies in backtesting that look great only because the data being looked at already has a nice sharpe ratio and the trading strategy is just taking a piece of that by jumping in and out.
If you are better off just holding and not trading, the strategy is worthless even though the equity curve could look fantastic.
Im not a fan of sharpe and am surprised that it is so widely used. It penalizes upside volatility,...so it penalizes big wins. A system that keeps drawdowns small but allows for big wins will get penalized by sharpe.
There are better (imo) metrics available that don't do this.
WRT the Sortino Ratio, what would be an appropriate Target Return value? How would one calculate an appropriate Target Return value for a Futures contract of some type?