Re-defining equity

Since the last update, five trades have been closed out. Three losses and two winners. Overall slight dip in closed equity since that October chart.

Portfolio is currently fully invested in the market.

I've also decided to use another method to determine my position sizing. I previously was using the TradeSim method which is available cash + open positions at the price paid. While the intention of this method is to be conservative (not count chickens before they hatch) in practice I have found it to be rather aggressive and to take on more risk than necessary as you are increasing your size in what could be the beginning of a drawdown.

Big winning trades are usually closed out when the market is correcting or experiencing a downturn of some sort, which is precisely when you DO NOT want to be increasing your position size.

The other obvious alternative to this is to use pure open equity marked-to-market, which I think is too aggressive and will result in too many fluctuations. Plus I don't really count open equity as my own.

So what I have opted for is what I consider to be a middle ground and to calculate my total equity as available cash + open positions at their trailing or initial stop loss levels (whichever is the greater). I think this method is conservative initially but as your winners start moving and stops are raised, it allows you increase your position sizes more dynamically.

The downside is I have not been able to test this method. But common sense tells me that it won't get me into too much trouble.

I have also been reading some of Ralph Vince's work, and I have been impressed. There are some areas which I have marked down for re-visiting down the track once I have time.

In other news, I've been busy trying to automate my US mean reversion system through Amibroker and IB.