There are lots of ways to filter a strategy (when it is good, when it is bad), google it and numerous methods and ways of evaluating strategy character will come up along with the needed math in terms of dependence.
But to answer you, yes, the equity curve of the underlying strategy is indicative of it's near term performance, especially with a strategy with a high dependence.
Here's a simple way to look at it. First separate your strategies as long strategies and short strategies. Now take the long component of your strategy and plot it. Clearly it will do better when the underlying market is in an uptrend. If you mix long and short it gets very messy and is nearly impossible to determine switch points.
Something else to consider is that a strategy that trades very infrequently (once per week) will need many, many weeks of consistent market behavior to give you good points to switch, and long periods of good performance.
Plus you need the underlying market to go into a consistent trend, and hold.
So the higher the frequency of your strategy, the more granularity you have to switch it on and off, and the closer your strategy performance will be an indication to the current market conditions.
Now, we don't even care if it's a winning strategy or not. The only thing we care about is that it has VERY CLEAR times of doing good, and VERY CLEAR times of doing poorly. We want it to die a death when conditions aren't right. This way we can more easily tell when to turn it off.
Here's an example to play with, try a long only moving average crossover and use very small stops, and very large targets.
Unless that strategy finds itself a clean, clear uptrend, it's going to die, and clearly die. But when it locks into a trend, it's going to gobble every bit of profit it can.
That subsequent equity curve is going to go down, down, down until it finds an uptrend, then it will shoot up. Clear switch points.
Have fun, it's my most favorite thing in the world, all this stuff. I like to think we have a collection of the best market direction indicators (our strategies) : - )
Trader 5of7 @ TheCollectiveFX.com
But to answer you, yes, the equity curve of the underlying strategy is indicative of it's near term performance, especially with a strategy with a high dependence.
Here's a simple way to look at it. First separate your strategies as long strategies and short strategies. Now take the long component of your strategy and plot it. Clearly it will do better when the underlying market is in an uptrend. If you mix long and short it gets very messy and is nearly impossible to determine switch points.
Something else to consider is that a strategy that trades very infrequently (once per week) will need many, many weeks of consistent market behavior to give you good points to switch, and long periods of good performance.
Plus you need the underlying market to go into a consistent trend, and hold.
So the higher the frequency of your strategy, the more granularity you have to switch it on and off, and the closer your strategy performance will be an indication to the current market conditions.
Now, we don't even care if it's a winning strategy or not. The only thing we care about is that it has VERY CLEAR times of doing good, and VERY CLEAR times of doing poorly. We want it to die a death when conditions aren't right. This way we can more easily tell when to turn it off.
Here's an example to play with, try a long only moving average crossover and use very small stops, and very large targets.
Unless that strategy finds itself a clean, clear uptrend, it's going to die, and clearly die. But when it locks into a trend, it's going to gobble every bit of profit it can.
That subsequent equity curve is going to go down, down, down until it finds an uptrend, then it will shoot up. Clear switch points.
Have fun, it's my most favorite thing in the world, all this stuff. I like to think we have a collection of the best market direction indicators (our strategies) : - )
Trader 5of7 @ TheCollectiveFX.com