Sydney NSW Australia
Experience: Intermediate
Platform: TradeStation, Oanda
Trading: Forex, index futures
Frequency: Daily
Duration: Days
Posts: 177 since Jun 2020
Thanks Given: 18
Thanks Received: 166
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That's true, good looking equity curve is more often than not the result of overfitting. The best is the system that produces more or less similar equity curve over a wide (reasonably wide) range of parameters. In TradeStation the third tab of the report, Trade Analysis, has a few parameters that are helpful - standard deviation, coefficient of variation, time between new highs etc. But it is probably better to export trades to Excel and play with stats. Then again, the curve of the past is not very likely to repeat itself in the future.
The solution to long flat periods and drawdowns is not in the system, in my opinion, but in money management. Reduce the size when the system is flat or going into the drawdown and push when it is doing well. How - a million dollar question, literally.
One way is to trade equity curve. So when the curve crosses below its moving average, or if it breaks below the lowest low of the last N trades you stop trading it live and keep track of its performance. When it gets back to being profitable you "switch it back on".
Another way - Fixed Ratio money management. Especially useful for small accounts, as the size goes up and down pretty aggressively, depending on the profits.
Third - diversification. Probably the simplest. You combine several systems with ugly equity curves, and the corners get smoothed out.
Hope this helps.
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