It’s a different game if you’re managing money. For example, at most hedge funds, they cut your risk in half if you lose 4% - so you have to be mindful of your drawdowns as much as you can
Strategy risk vs overall risk mandate
- Thread starter bln
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This is almost painful for me to read. One of the greatest benefits of trading your own money is the ability to freely lose it!
Unless you’re trading severely capital intensive arbs and leverage constraints have blocked your ability to have a proper drawdown, you have got to be leaving a very large chunk of terminal wealth on the table trading this way.
If you understand this and still choose to gut your VaR because absorbing variance diminishes your quality of life more than the utility of additional wealth adds to it, then more power to you. I could actually kind of admire that.
I think I got into trading partially because I can’t help pushing the envelope even when I kind of wish I could get myself to back off. Lost count of the times I’ve been -10% or more on intraday marks on a high conviction trade in the past 5 years.
LOL; I trade equities.(long only) Very rarely use margin. Number one priority is capital preservation. Happy with 20% a year.
Trades have to prove themselves high conviction trades, then I'll add.
It's easy to avoid large drawdowns, don't hold trades that move againts you. Don't let the market prove you wrong, make the market prove you right.
I got into trading because I didn't like the drawdowns that buy and hold investing entails. I fund my lifestyle with my returns. Every so often I have to pay my bills and I didn't like selling when the market was correcting.
Now I can be 100% invested while the market trends up and in cash while the market trends down.
I'm not going to turn a few thousand into a million and I'm not shopping for a lambo. Gotta do what works for me.
If you’re trading stocks, you should have a risk management in place that will protect your account in case the stock will gap say by 50%.
Risking 1% of your total account won’t protect you from the above scenario if you have majority of your capital in that unlucky stock.
What will protect you is to allocate say a 10 % maximum of your capital to one position. Therefore, if your stock gaps by 50%, you’ll lose only 5% of your capital.
I’m just giving examples, just use whatever figures work for you.
Also be careful when you're trading correlated stocks in the same industry / sector . . . I think you know what I mean
Unless you are like me, already over the hill, with the magic of compounding, in another 30 years, you can turn a few thousand into a million with a 20% a year return.
Not sure what hill you're referring to but mine gets steeper ever year.Unless you are like me, already over the hill, with the magic of compounding, in another 30 years, you can turn a few thousand into a million with a 20% a year return.
I'm not older than dirt but I know the guy who invented it.
With a return of 20% and a drawdown of < 10% your risk adjusted return is outstanding.
For me drawdown of 30% is not unusual.
Fortunately I am retail and no one is going to break my kneecap for a 30% drawdown.
Speaking like a true gambler (trader/speculator).
30% is a brutal drawdown. You have to get 42% just to break even.For me drawdown of 30% is not unusual.
Fortunately I am retail and no one is going to break my kneecap for a 30% drawdown.
That takes time to recover and like they say time is money.
One of the reasons I'm a trader is that I didn't like the drawdowns and having to wait for things to turn around.
I made the decision not to hold losers in my portfolio. Have had no nasty drawdowns since then.