I like the "open ended profit targets"UPDATE: DRAWDOWN HIT A NEW LOW 34%.
I got seduced by short term trading and it took me to the cleaners.
After making over 1000% trading daily charts/4 hour, I got into short term trading for the thrill of more trades/more signals/more size/more compounding/more instant gratification.
Time to ease back into to my longer term strategy, trading 1-2 times per week risking 5-10% per trade with open ended profit targetsops:
Best Way To Deal With A Large Drawdown
- Thread starter Fundlord
- Start date
Update: Drawdown is now a hellish 40%
More upset about the fact that a comeback seems impossible in these conditions. Racking up 20 2% gains is unlikely I have to go for 10%+ trades while minimising risk.
I've said this before I will say it again. Judging by the size of your cumulative losses you are running too much risk, and are continuing to do so. This concerns me much more than the size of your drawdown. The longer this goes on the more chance you'll end up blowing up.
You should be reducing your risk not increasing it. At the very least with a 40% drawdown you should be putting on trades 0.6 the size of what you did at your peak (cf Kelly).
Why do you 'have to go for 10%+' trades? What will happen if you don't?
What is your expected annual standard deviation of returns? Perhaps you could post a time series of your daily p&l for the last few weeks (in % of account size at peak rather than money). Then it would be easier to judge whether you had your risk right before, and if you have it correct now.
I have cut my size in half but the only way I see out of this is by trading less frequently only on super high conviction trades. Since these opportunities are less frequent I have to win big when I trade them.
For example last night I sold 5 Lots GBP/USD at the open with a stop of about 25 pips risking £1250 had I held I would have made £7500 over 10% my account value.
But I convinced myself it wasn't going to happen and exited flat like an idiot.
After looking at the past 2 months of trading I noticed I branched out into cross currencies where the majority of my losses have accumulated.
I will only be trading GBP, EUR, JPY against USD from now on. Where I have made most of my $.
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Well there is good and bad here.
Betting less often will reduce your standard deviation of returns - for a given trade size. But if you increase your trade size then you'll cancel that out. So it sounds like you're still running with too much risk, and that you haven't cut your risk in line with the size of the drawdown.
Also, the optimal trading system should be independent of whether you've lost money. Put another way the market doesn't know if you're in a drawdown. If only trading high conviction ideas is more profitable, then you should do that regardless of what your current p&l is. If trading only dollar pairs is more profitable, than again you should do that all the time, not just in a drawdown.
GAT
You gotta walk away. You went more than double further in the hole than when you first wrote about being in the DD! S T O P and walk away from everything for a few days. You haven't reached the point in trading yet where you can say "ok, f*ck, I've taken X hits in a row but I'm going to continue following my model." If you were at this point in your development then you wouldn't have posted the thread!
Step back and calm down.
Step back and calm down.
"I have cut my size in half but the only way I see out of this is by trading less frequently only on super high conviction trades."
That might seem logical to you, especially when you're in the middle of a major drawdown, but that's actually the exact opposite of what you should be doing. Increasing size on high conviction trades as you put it is the exact same thing as trading your directional market predictions.
How many times does it have to be said? NOBODY can predict with any reasonable long-term accuracy where markets are going in the short term, stop trying. The whole point of option trading is so you don't have to do that. This isn't equity trading.
Sounds to me like you're trading options as replacements for equity focusing on price and predicting direction, rather than learning how to actually trade options directionless. Those are two entirely different sports, yet you're treating them as the same thing.
You have to change your mentality, or losses are sure to continue...
That might seem logical to you, especially when you're in the middle of a major drawdown, but that's actually the exact opposite of what you should be doing. Increasing size on high conviction trades as you put it is the exact same thing as trading your directional market predictions.
How many times does it have to be said? NOBODY can predict with any reasonable long-term accuracy where markets are going in the short term, stop trying. The whole point of option trading is so you don't have to do that. This isn't equity trading.
Sounds to me like you're trading options as replacements for equity focusing on price and predicting direction, rather than learning how to actually trade options directionless. Those are two entirely different sports, yet you're treating them as the same thing.
You have to change your mentality, or losses are sure to continue...