Quote from inflector:
Just to give you some perspective on what can be achieved if one is not a fund and worried about investor tolerance for drawdowns; when I was a turtle, my returns for the four plus years we traded were just over 1,650%. Which is slightly more than 100% per year. They would probably have been a bit higher had we been allowed to increase our trading sizes more than once per year.
Commodz is correct. The strategy works and will likely continue to work as long as humans are doing the trading, or even deciding what the computers do; the problem is that most people don't have the discipline to follow a long-term trendfollowing strategy through the inevitable troughs.
- Curtis
I certainly won't dispute your claims since I, like most of us here, have read about you guys and how well some of you did. However, allowing for major drawdown opens a trader to a world of risk. With a more sedate trading method, you are more likely to know earlier if and when things are going wrong. However, with a method that incorporates the possibility of major drawdown, you are likely to be apprised of this information by the time it is too late.
If you will indulge me a metaphor, consider a test pilot who cautiously avoids aerial acrobatics too close to the ground. If something goes awry, he has sufficient buffer to get back on course. However, the daring pilot who characteristically almost grazes the ground during his maneuvers has little wiggle room if things go wrong at the wrong time. And so it is with a trader who characteristically allows for major drawdown. You generally only hear about the ones who either do spectacularly well, like yourself, or the ones who blow up spectacularly and take many people with them. But what about the many unseen traders who quietly and systematically take major drawdowns and deplete their accounts beyond the point of no return?
I think that allowing for major drawdowns is allowing for more luck, either good or bad. If you have a tradeable edge, then you need the law of large numbers to consistently realize that edge over time. However, by allowing for major drawdown then, all else being equal, you are more at the mercy of market behavior that may or may not be characteristic of what your method was designed to encounter. You are leaving much more to chance. If it works out, then you're a hero. If not, well, then you're just another smudge on the trading landscape. There tend to be far more smudges than heroes.
I'm curious. Could you please tell me what was the largest percentage drawdown that you encountered while actively trading? Specifically, what was the largest percentage drawdown from an equity peak and, if that drawdown dipped into the original capital at the start of the year, by what percentage was the original trading capital depleted by this drawdown?
