How to manage risky traders - 10% a day and 50% drawdowns

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Preston Forbes

So we have this trader who is amazingly profitable...day scalper. All things are great until that one day a month as usual happens and the 50% drawdown hits in.

Is it as simple as us just pulling the plug at 10% that day and letting him cool off a day or a week?

Im sure its not that simple but I would appreciate some thoughts and ideas.
 
Quote from Preston Forbes:

So we have this trader who is amazingly profitable...day scalper. All things are great until that one day a month as usual happens and the 50% drawdown hits in.

Is it as simple as us just pulling the plug at 10% that day and letting him cool off a day or a week?

Im sure its not that simple but I would appreciate some thoughts and ideas.
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If you cap his intraday loss at 10% he will not continue to be able to make 10% a day on most days.

Live by the sword ...
 
Pull his P&L over the last 1 month or 3 months or whatever and show him how much more profitable he would be if he were to cut his losses at 10%. Sounds like he is spending most of his time climbing out of the hole. Not getting into the hole in the first place will add a whole new dimension to his trading.
 
Quote from Preston Forbes:
So we have this trader who is amazingly profitable...
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1) Is his last name "Neederhofer"?
2) To keep "large losses" off of his statement will serve both of you well.
3) The trader has issues with perfectionism that ought to be dealt with. :cool:
 
Quote from Preston Forbes:
So we have this trader who is amazingly profitable . . . I would appreciate some thoughts and ideas.
More...
There is not really enough information here to make a realistic recommendation. Return vs. drawdown is what I call trader skill. Within a skill level, the trader can play one against the other. A trader can advance his skill level (i.e. improve both return and drowdown), but usually at his own pace and direction. If you are a supervisor/allocator, about the best you can do in a situation like this is to de-leverage. Of course, you're just giving up return to get lower drawdown (but you already knew that). Probably the worst thing you can do is tell the trader how to trade (unless he is a trainee).
 
The trader makes 10% BECAUSE he has 50% drawdowns. Strategies that rely on very high win % and huge stops are scary IMO since there is a streak of megalosers always lurking in the darkness beyond all expectations.
It may take a week, a year, 10 years till its gone in one trade..
Don't mistake trading skill for wide stops and small profits.





Quote from Preston Forbes:

So we have this trader who is amazingly profitable...day scalper. All things are great until that one day a month as usual happens and the 50% drawdown hits in.

Is it as simple as us just pulling the plug at 10% that day and letting him cool off a day or a week?

Im sure its not that simple but I would appreciate some thoughts and ideas.
More...
 
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