Equity Curve DM 65sma-3cc

Months (2/22/88-6/20/95)

Figure 6.14 Monthly equity curve for deutsche mark calculations with rollover contracts.

Analysis of Monthly Equity Changes 197

uity curve clearly shows a need to check those charts if you had not checked them already.

Our usual summary does not tell us what the equity changes are over periods of 1, 2, 3, 4, 5, 6, or 12 months. Yet we need this type of information to understand the impact of the trading strategy on account equity. So, let us review how the 65sma-3cc system did over different time intervals. Figure 6.15 is a plot of the worst drawdown over any con­secutive periods of 1, 2, 3, 4, 5, 6, or 12 months. The drawdowns were in the range of-$9,000 to -$13,000. This is the maximum peak-to-val­ley reduction in equity over the monthly period of interest.

You will recognize that such a drawdown is meaningful only in the context of your account equity. Thus, if you traded this system with a $25,000 account, it would suffer drawdowns greater than 20 percent, suggesting you should trade this system with $50,000 or more of equity per contract traded.

Another important piece of information we can gather from the equity analysis is the percentage of intervals that were profitable. This