Trading The Equity Curve by Joe Luisi
Technical analysis is typically applied to prices to determine the trend and changes in the trend. Now consider applying the same concept to analyzing your equity curve to determine those times when your equity may not be trending in the preferred direction.
Money management may be the single most important aspect in trading, but few traders spend the
necessary time required for successful trading. Generally, it is a rule of thumb that traders should spend
30% of their time analyzing the markets and 70% of their time split between looking for low-risk,
high-profit trades and money management. With the increasing popularity and availability of the home
computer, trading systems promising huge rewards have burst on the scene, but not necessarily
delivering. The novice trader may be led to believe that with the right system, he or she can beat the
market and achieve great monetary success. The truth is quite the opposite.
SECRETS OF SUCCESS?
To be successful, a trader only needs a system that is 51% accurate and sometimes not even that. Most
successful money managers use systems that are only 40-50% accurate, but they have very strict money
management standards and their risk to reward ratio is very high. A money management plan is very
important, even if a trader does not use a mechanical system to trade, an accurate record of trades
executed should always be kept and equity plotted on a daily basis. Such records can give the trader a
visual idea of how his or her trading is faring—trending up, down or flat.