dips below the zero line in the drawdown chart correspond to the downturns in the
equity chart. Note in Figure 26.9 how the largest drawdown is only a tad larger
than the second largest drawdown, and how the system manages to trade itself out
of it and set another new equity high before the end of the testing period.
A few of these numbers change when we change the fictive ffrom 2 to 4 per-
cent. First, note in Figure 26.10 how the available equity in row 11 goes down to
$10,040, as compared to $48,020 in Figure 26.7. This is because the amount tied
up in the two positions that day increased with the amount risked. In fact, in the case
of market 2, the suggested amount tied up, based on the total equity, increased to
an amount surpassing the amount available in Figure 26.10. Therefore, the amount
tied up in Figure 26.11 reaches its maximum of $50,000, which is calculated as the
amount available from the end of the previous day (cell AH10, in Figure 26.10),
divided by the number of new signals that day (cell AF11, in Figure 26.10).
A few rows in Figure 26.10 also indicate that no equity is available at the end of
that day, going into the next day’s trading (rows 25, 35, and 36). Had there been any
trades signaled for rows 26, 36, and 37, we would not have been able to take those
trades, simply because all our money would have been tied up in other trades already.CHAPTER 26 Dynamic Ratio Money Management 319
FIGURE 26.9
Drawdown underwater chart.