Linear Equity Curves - What NOT to look for
Linear Equity Curves - What to look for
So now that we know which types of equity curves are inherently either much likely unprofitable or deliberately hiding something about the automated trading system we now need to see the equity curves which are the mark of profitable expert advisor. What do we want to see ? First, we need to see a long period of testing, (nine years works best) and an expert advisor which is not prone to large back testing errors. We want an ea that is NOT a scalper.
Our idea is to see the whole picture, we want to see the expert's profits, loses and others and then see how equity grows in time amongst the very different market conditions that have happened in the past. A very good example of this is the last version of God's Gift I have been talking about which is adjusted to market volatility. As you can see, the equity curve can generally fit the description of a straight line (statistically) which means that equity growth is linear. However, as you can see, the expert does have loses, but loses are much smaller than profitable trades. What this shows us is that the ea is tackling a vital characteristic of the market which lets it profit amongst all the different market conditions during the past 9 years (back testing was done from Jan 2000 to Jan 2009 at 90% modeling quality). The expert does have loses, but profits are greater.
As you can see, the expert's testing has sections that would "look" like straight lines by themselves and have no loses, but if the expert is globally profitable then it is much more important to see the entire picture to get a real image of how much you can expect to get as profit against how much you are risking as expected draw down.
If you would like to learn more about the God's Gift expert advisor and other profitable free and commercial expert advisor please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !