The opening gap strategy is an ideal method for an automated trading system. In this article we look at the equity curve for oil futures.
Continuing our series of articles into the Opening gap strategy, this article will show the excellent profit potential when used as part of an automated trading system.
What is an equity curve
An equity curve shows how profit (or loss) is accumulated over a large number of trades or time. It is one of the measures of that can be applied to a trading system to show how successful it is likely to be in the real market.
An automated trading system that has good profit potential will show a gradual accumulation of realised profit over a large number of trades.
Even successful trading systems have periods of drawdown or a percentage of losses. This is an inevitable aspect of trading, however it is how the system recovers from the losses over time, that is important to the trader.
Taking these considerations into account, we would want to see an equity curve which has almost a linear relationship between the number of trades and accumulated profit. This creates an ideal equity curve with a 45 degree slope.
The Opening gap strategy equity curve for oil futures
The image above (click for a larger image) shows the equity curve produced over 700 trades using our automated opening gap strategy trading oil futures.
Although there are slight peaks and troughs in the equity curve, you can see that the slope from bottom left to top right is almost exactly 45 degrees, which is favourable, as discussed above.
This shows that the opening gap strategy accumulates profit over time without significant and sustained periods of drawdown.
This equity curve would lead the trader to have good expectations of a positive ROI (return on investment) if using the opening gap strategy as part of our automated trading system.