The first idea is the on/off switch. To see how switches affect trading performance it is worth reading "Unholy Grails" by Nick Radge. He back-tests a number of systems with and without an on/off switch and the general outcome is that by using one you make less money BUT the you also suffer less severe draw-downs.
Taking huge draw-downs is never much fun so, from my perspective, the smooth equity curve is desirable. There is another feature of the switch that I have come to love, it becomes a type of holiday setting. When the system is off I don't bother looking for new trades and managing the existing trades becomes progressively easier. Generally you lose a few quite quickly and the rest either keep going or eventually drop off the perch. In the meantime it's simply a case of firing up the PC, checking a few charts and adjusting a stop or target here and there then heading for the beach, lakes or mountains or perhaps, the renovations but I like the idea of beaches and mountains better.
"Everything should be made as simple as possible, but not simpler." - Einstein
In keeping it the above, I present (drum roll) the traffic light.
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| All Ordinaries - Click to enlarge Chart courtesy of www.IncredibleCharts.com |
- 10 day Exponential Moving Average - Green
- 20 day Exponential Moving Average - Amber
- 30 day Exponential Moving Average - Red
When they are lined up like a traffic light the system will buy. When they become scrambled the system will pause and when they are inverted the system will get defensive and tighten the hard stops.
