Has anyone tried trading off the equity curve of a particular trading system. For example, I am using a mechanical trading system on pound/dollar 1H time frame. After every trade I plot the equity curve on my charting platform. I use Metatrader for my trading system, but I plot equity curve in Metastock. After I update the equity, I plot some indicators such as RSI and moving averages. If you use these indicator on the equity curve, you will get much better signals than using them on the actual currency pair.
The equity curve of my trading system has a tendency to constantly rise. In fact, in the past 6 months, it went from $1000 to $18,000. However it experiences extreme volatility at times. If you look at the recent curve, it went down from all time high of $30,000 to current value of $18,000. I have plotted RSI and 50,100, 200 SMA on the equity curve. You can see that when RSI is overbought, the equity soon enters into draw down. At this point, you can choose to stop taking trades generated by the system. When the RSI enters oversold zone and crosses above it, you can resume taking the signals. In such manner, you are able to avoid draw downs of a particular trading system. Also, the last value of the equity on the chart below has touched 200 SMA and rebounded. So, there is a possibility of rebound in equity and also I drew some trendlines which all point to strong support around current level. So on Monday, I will start taking signals of my trading system in anticipation that the equity will rise.

This idea is unique and I encourage you to plot equity curve of your trading system and then using it to time your trades and hopefully you will be able to avoid drawdowns and take only winners.

Attached Images

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