What's the worst drawdown you can handle?
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I think a lot of people is misunderstanding drawdown here.
drawdown or Max drawdown goes out with the square root of time and it's a function of your expectancy, correlation in your trades, freqwuency of your trading and the distribution of your P&L. A very complicated and interesting statsictics.
I think doing some monte-carlo runs will illuminate the dynamics behind drawdowns, even if you are discretional trader.
I also think that max drawdowns are the best measure of risk for traders compared to stats like volatility or VAR.
My settings are 25% for a 20 yr timeframe. (Any drawdown has no meaning unless you give it a timeframe)
drawdown or Max drawdown goes out with the square root of time and it's a function of your expectancy, correlation in your trades, freqwuency of your trading and the distribution of your P&L. A very complicated and interesting statsictics.
I think doing some monte-carlo runs will illuminate the dynamics behind drawdowns, even if you are discretional trader.
I also think that max drawdowns are the best measure of risk for traders compared to stats like volatility or VAR.
My settings are 25% for a 20 yr timeframe. (Any drawdown has no meaning unless you give it a timeframe)
I am able to endure significant drawdowns on my commodity trading, since I am playing for the big move with a highly leveraged instrument... one trade can make my year...
But on my stock trading, I prefer drawdowns no larger than 15%-20%...
But on my stock trading, I prefer drawdowns no larger than 15%-20%...
15% is my uncle point, with a max of 46:1 leverage in Retail Spot Forex.
My max drawdown is 2% per trade and up to 12% per trading day.
Saying that, I typically take a fair streak of loses waiting for the big moves, which seems to work for me at the moment.
Saying that, I typically take a fair streak of loses waiting for the big moves, which seems to work for me at the moment.
Intereresting thread. I should add that I can take some extreme positions, and that the previous week added 33% to my account 
So, I have high volatility in my P&L, and thus have to face losing big bucks once in a while.
My current motto is: One cannot live off Sharp-ratio alone
(I never aspired to become a professional money manager)
So, I have high volatility in my P&L, and thus have to face losing big bucks once in a while.My current motto is: One cannot live off Sharp-ratio alone
(I never aspired to become a professional money manager)
1/2 of your historical annual return. If you earn 100% a year, a rare 50% drawdown (once every 5 years) is fine.
This is more directed to systems traders than discretionary traders who have a little more conscious control and tend to avoid a 50% drawdown. For a discretionary trader, I'd say limit it to 20% of your capital.
This is more directed to systems traders than discretionary traders who have a little more conscious control and tend to avoid a 50% drawdown. For a discretionary trader, I'd say limit it to 20% of your capital.
should not the question be :
how much of my net worth am I prepared to lose
trading before I lose my mind ( or get another job
or declare bankruptcy )
heck ... a 5 % drawdown for a person with $1M in the bank = 50 K it hurts but not as much as
the 3K drawdown might to a chap who has only
50 K in the bank ( or trading acct )
:eek:
how much of my net worth am I prepared to lose
trading before I lose my mind ( or get another job
or declare bankruptcy )
heck ... a 5 % drawdown for a person with $1M in the bank = 50 K it hurts but not as much as
the 3K drawdown might to a chap who has only
50 K in the bank ( or trading acct )
:eek:
I will tolerate 50% drawdown on any 20% section of my portfolio. I invest in 20% chunks, using different simultaneous strategies for each, usually. In addition, I maintain a 20% cash reserve above and beyond the portfolio total.
If that isn't clear, perhaps this is: Assuming I have $120K to invest, I will set aside $20K in cash reserves. The other $100K gets split into $20K chunks, each of which is used for investing. I might do an SPX butterfly with one, an OEX condor with another, purchase GM stock and sell covered GM calls with the other, buy some DIA LEAPS with the other, purchase some ESM6 e-minis with the other or do FOREX currency pairs.
In any event, my goal is to be 100% invested in the market each month (meaning, all of my "chunks" get played). Most of these investments are short-term (2 mos or less). The only exception to that being my mutual funds, which are separate from this strategy.
If that isn't clear, perhaps this is: Assuming I have $120K to invest, I will set aside $20K in cash reserves. The other $100K gets split into $20K chunks, each of which is used for investing. I might do an SPX butterfly with one, an OEX condor with another, purchase GM stock and sell covered GM calls with the other, buy some DIA LEAPS with the other, purchase some ESM6 e-minis with the other or do FOREX currency pairs.
In any event, my goal is to be 100% invested in the market each month (meaning, all of my "chunks" get played). Most of these investments are short-term (2 mos or less). The only exception to that being my mutual funds, which are separate from this strategy.