hypothetical question

[kenten]

lets say someone started with 10,000, this became 100,000 in a few years.
then in 3 months it became 1,000,000
this hypothetical trader uses mechanical trading and there is nothing extraordinary about the results . this case is one of possible outcomes predicted by the backtest , but somewhat at the tails.
at this point our hypothetical trader got a little bit antsy, feels the psychological pressure. question is , "is it reasonable to decrease %50 or more of the of the investment ? ". to put it somewhere safer , like real estate .
what do you think ?

 

[studentofthemarkets]

"is it reasonable to decrease %50 or more of the of the investment ? "

Not only reasonable, but IMHO it would be foolish not to invest elsewhere...providing the "elsewhere" isn't risky but an investment as opposed to a traded instrument. Just my thoughts....and what I would do if I ever happen to have that dilemma.

 

[trdes]

lets say someone started with 10,000, this became 100,000 in a few years.
then in 3 months it became 1,000,000
this hypothetical trader uses mechanical trading and there is nothing extraordinary about the results . this case is one of possible outcomes predicted by the backtest , but somewhat at the tails.
at this point our hypothetical trader got a little bit antsy, feels the psychological pressure. question is , "is it reasonable to decrease %50 or more of the of the investment ? ". to put it somewhere safer , like real estate .
what do you think ?

EDIT: Appears I misunderstood the question, I therefore move to withdraw my response with everyone's permission. Thank you

 

[SanMiguel]

lets say someone started with 10,000, this became 100,000 in a few years.
then in 3 months it became 1,000,000
this hypothetical trader uses mechanical trading and there is nothing extraordinary about the results . this case is one of possible outcomes predicted by the backtest , but somewhat at the tails.
at this point our hypothetical trader got a little bit antsy, feels the psychological pressure. question is , "is it reasonable to decrease %50 or more of the of the investment ? ". to put it somewhere safer , like real estate .
what do you think ?

That sounds like a backtest that took advantage of a very specific market to go 10x in 3 months.
How can you be sure those specific scenarios will occur again?

 

[kenten]

That sounds like a backtest that took advantage of a very specific market to go 10x in 3 months.
How can you be sure those specific scenarios will occur again?

i accept this kind of markets will not repeat itself , average expected return from systems is much lower of course. but this happened and now we need to have a decision
there are some technical details like slippage will probably change , the execution side need to be retought . but the question is about the mental side
of course this is all hypotetical

 

[trdes]

i accept this kind of markets will not repeat itself , average expected return from systems is much lower of course. but this happened and now we need to have a decision
there are some technical details like slippage will probably change , the execution side need to be retought . but the question is about the mental side
of course this is all hypotetical

Did the system trade both sides or only long? A true edge that you can rely on for long term consistency is where you can parse the data enough to understand when something is actually bullish and actually bearish with exactly defined (or at least very closely defined) perimeters.

People often fall into the trap of thinking they have an actual edge when they enter the markets, not understanding it's possible they are only winning due to entering the markets at a time that is extremely forgivable to their strategy.

So, as soon as the underlining instrument changes, their edge falls apart because they don't have an effective way to measure when the shift occurs.

 

[SanMiguel]

i accept this kind of markets will not repeat itself , average expected return from systems is much lower of course. but this happened and now we need to have a decision
there are some technical details like slippage will probably change , the execution side need to be retought . but the question is about the mental side
of course this is all hypotetical

Of course. I mean let's say you're +250k. Are you really going to hold on for 1m or just take all the money out to spend on coke and whores?

 

[kenten]

coke and whores are always good choices
if we crook from corona in a few moths at least it puts a smile on your face

 

[Sekiyo]

Drawdown isn’t the problem.
From 10k to 1M you’ve experienced it.
The problem is : Does my edge is gone ?

If yes then stop trading altogether.

I’d just risk less as it’s still the best option,
Returns wise.

If you can make more with 500k in RE,
Then put that money at work into Real Estate.

With 10K I do risk 5%
With 1M I’d risk around 0.1%.

If you have an edge and bet optimally,
Then 50% drawdown is not the problem.
It’s just part of the optimal growth scheme.

I’ll repeat myself but if you under bet,
Then you won’t experience 50% DD,
However you will return less overall.

But 10, 15, 20% annually from 1M is fine.

 

[kenten]

there is no technical problem , the problem is psychological.
the 70s 80s idea of risking no more than %1 is ok for most but not mathematically correct. i believe in kelly and optimal f