Trading the Equity Curve Position Sizing Example

This trading strategy is a confluence model that identifies trend-following entries. It uses a crossover of the Chande Momentum Oscillator for a primary signal. This signal is then confirmed by both the Momentum indicator and the SuperTrend indicator to ensure the trade aligns with the underlying market momentum and trend.

To trade this strategy manually :

First, set up your TradingView chart with these four indicators:

• Chande Momentum Oscillator (CMO): Set the Length to 9.
• Moving Average (SMA): Apply this directly to the CMO indicator, not the price chart. Set the Length to 10.
• SuperTrend: Set ATR Length to 10 and Factor to 3.0.
• Momentum: Set the Length to 12.

Long Entry (Buy) Conditions: Enter a long position when all four of these conditions are met on the same candle:

• The CMO line crosses above its 10-period SMA line.
• The Momentum indicator is positive (above the zero line).
• The Momentum indicator was also positive on the previous candle.
• The price is trading above the SuperTrend line.

Short Entry (Sell) Conditions: Enter a short position when all four of these conditions are met on the same candle:

• The CMO line crosses below its 10-period SMA line.
• The Momentum indicator is negative (below the zero line).
• The Momentum indicator was also negative on the previous candle.
• The price is trading below the SuperTrend line.

Exit Conditions: This is a reversal strategy. You exit a long position only when the conditions for a short entry are met. You exit a short position only when the conditions for a long entry are met.

This strategy automates risk management by adjusting position size based on your equity curve's performance. While effective, a manual trader can enhance this mechanical approach by adding discretion and forward-looking analysis. The script is purely reactive; your advantage is being proactive.

Here is a plan to build upon its foundation:

• Implement a Tiered Drawdown Protocol: Instead of a single rule, create multiple levels. For example, a 5% drawdown from your equity peak might trigger a 30% position size reduction. A 10% drawdown could trigger a 60% reduction. A 15% drawdown should trigger a complete trading halt, forcing you to re-evaluate your core strategy and the current market environment. This provides a more graduated and controlled response to losses.
• Contextual Size Adjustment: Don't use a fixed percentage for all situations. Analyze the *character* of the drawdown. Is it a slow, grinding bleed in a choppy market? A smaller size reduction may be appropriate. Is it a sharp, violent drop due to unexpected news? A much larger size reduction, or a total pause, is a more prudent response. Match your risk reduction to the market's volatility and behavior.
• Proactive Risk Mitigation: The script only reacts *after* the equity curve has turned down. You can anticipate risk. Before high-impact news events like FOMC meetings or Non-Farm Payroll reports, manually reduce your position size regardless of your equity curve's status. This protects your capital from the predictable volatility spikes that an algorithm cannot foresee.
• Discretionary Override (The "Off" Switch): The most powerful tool a manual trader has is the ability to simply stop. If the market feels wrong, if your strategy's setups are consistently failing, or if you are not in the right headspace, do not trade. This human override is superior to any automated size reduction, as it prevents further losses when your system is clearly out of sync with the market.

This strategy is built for systematic, rules-based traders who want to add an automated layer of risk management to their existing system. It is particularly powerful for traders who struggle with the emotional discipline of cutting size during a drawdown, as it enforces the decision mechanically. By automating risk reduction, it helps prevent the common pitfall of "revenge trading" to win back losses.

The trading style is primarily trend-following and momentum-based, making it well-suited for both day trading and swing trading. The core entry logic is designed to capture sustained directional moves rather than quick scalps. It’s ideal for traders who:

• Prefer a clearly defined plan for both entries and risk.
• Trade in markets that exhibit clear trending behavior.
• Want to protect their capital by systematically reducing exposure when their strategy is out of sync with the market.

Here are the key takeaways for this strategy:

• Core Strategy: A trend-following system that uses a confluence of four indicators—Chande Momentum Oscillator, a Moving Average, SuperTrend, and Momentum—to identify high-probability entries in trending markets.
• How It Works: A long entry requires a CMO crossover, positive momentum confirmation, and price above the SuperTrend line. A short entry requires the opposite conditions. Exits occur when the opposing signal appears.
• Risk Management: Its main feature is dynamic position sizing based on your equity curve. The system automatically reduces trade size during a drawdown to protect capital, enforcing discipline when it matters most.
• How to Use It: This system can be fully automated. Alternatively, set up alerts on TradingView for the entry conditions and combine them with your own analysis for a hybrid approach, or trade it completely manually.
• To Enhance It: Improve the mechanical rules with discretion. Implement a tiered drawdown plan (e.g., 30% size cut at 5% DD, 60% at 10% DD), adjust risk based on market volatility, and manually halt trading when conditions feel wrong.