Best Way To Deal With A Large Drawdown

[Fundlord]

As other replies mentioned, how big is it compared to your long term backtested drawdowns?

If it has exceeded the expected maxdrawdown by a good margin then you need to shut it off or reduce.

Another rule of thumb is 1.5 times the standard deviation of returns - if the drawdown is deeper than this number then consider switching off or reducing.

If this system is part of a portfolio of uncorrrelated systems then you might just want to keep it going at a reduced allocation as it might be providing smoothing effect for your overall trading plan. I'm a proponent of trading as many uncorrelated systems as you can find, this way an 18% drawdown in a particular system translates to a small drawdown in your overall wealth.

This is how I trade my own strategies, but a different story when I allocate to other managers. My current managers are uncorrelated trading different asset classes but all are drawing down this year ranging from -5% to -20%. I might just fire all of them and trade the assets myself.

My largest drawdown prior to this was 9%.

 

[newwurldmn]

I would re-evaluate your strategy. Environment may have changed on you.

It was over a 30 or so trades losing 20 trades at 2 percent each and winning 10 at 1-2 percent each. Usually my win rate is much higher, i took profits way to early in all the trades and cut losses way too early. Further reducing my win rate.

 

[Fundlord]

Thanks for all the great replies, I am considering switching to stock index futures and gold/silver and try find an edge there trading more long term.

I think the currency market is becoming more and more difficult for me to time to get those outsized returns I did in the past.

I think stress has also been affecting my judgement, anxiety about news announcements affecting my positions.

 

[Turveyd]

If your m1 trader then it's all about waiting for an up move then jumping on it, dax has been good recently, FX has its moments but to flat most of the time to get away with this for my likings.

Comms are to for me on FX aswell.


Crack this and draw downs will be a thing of the past as very few losers

 

[Fundlord]

If your m1 trader then it's all about waiting for an up move then jumping on it, dax has been good recently, FX has its moments but to flat most of the time to get away with this for my likings.

Comms are to for me on FX aswell.


Crack this and draw downs will be a thing of the past as very few losers

I usually trade hourly or daily time frames but I have had a few successful day trades.

Do you recommend trading popular indexes like the SP500/STOXX50/FTSE100 or less popular ones such as the German, Italian and Spanish indexes ?

 

[Turveyd]

I usually trade hourly or daily time frames but I have had a few successful day trades.

Do you recommend trading popular indexes like the SP500/STOXX50/FTSE100 or less popular ones such as the German, Italian and Spanish indexes ?

I generally just trade the dax ie German but that's cause it's my cheapest option really and it moves very well when I'm around.

I used to just zone out and wait for a turn our what looked like a turn which is always high risk, these days.......

Direction is up
Look for a mini pull back and pause
Enter long

Basically just using the noise to enter with really, most trades are just scalps, it reaches the other side and i take it, some hold longer depending on market strength ofcourse, but only just got my head around this after many years of trying, need to work on this part next.

On 16 winners and 0 losers with this method so far, sure I will screw it up soon get over confident, not want to lose and get slapped hard. Lol

 

[Redneck]

It was over a 30 or so trades losing 20 trades at 2 percent each and winning 10 at 1-2 percent each. Usually my win rate is much higher, i took profits way to early in all the trades and cut losses way too early. Further reducing my win rate.

Lets whip up a little interpretive narrative

It was over a 30 or so trades

Nothing so far

losing 20 trades at 2 percent each and winning 10 at 1-2 percent each.

Losing trades = lose up to 2X more than winning trades

Winning trades = never win more than the losing trades

Flies in the face of proper risk / trade management

Summary = problematic and unsustainable

Usually my win rate is much higher,

When the amount a losing trade..., loses - equals/ exceeds the winning amount - each winning trade makes

The approach is flawed..., and unsustainable - period

No matter the win rate

Can't beat the math

i took profits way to early in all the trades

This say there is a hiccup internal to the trader..., and to a lessor extent - to each trade's plan

and cut losses way too early. Further reducing my win rate.

This says there is really no systematic approach - other than to enter - then hope volatility produces the desired outcome (returns a losing trade back to a profitable one)

fyi - volatility masks piss poor trading skills - always has..., always will

Granted..., one could interpret this quote as an RTM trading approach - but I doubt it

==================

Me thinks this trader should reevaluate not only his/ her internal workings..., but also their entire approach to trading / risk management / trade management


jmdao - what do I know anyway

RN

 

[globalarbtrader]

As other replies mentioned, how big is it compared to your long term backtested drawdowns?

Another rule of thumb is 1.5 times the standard deviation of returns - if the drawdown is deeper than this number then consider switching off or reducing.

+1 This is a great rule of thumb, especially if you don't have a long backtest to draw on. If it makes you feel better I'm currently in a 16.7% drawdown, but my vol target is 25% annualised, so I'd only be concerned at eithier a drawdown in the 33% (from simulation) to 37.5% range.

 

[Fundlord]

Account has official gone into crisis mode 23% drawdown after a bad ASX200 trade

 

[SwingToWin]

my sympathy. I'd take a break.