At what drawdown % would you get out of everything, go 100% cash and get a start fresh?
What's your max drawdown threshold?
- Thread starter turkeyneck
- Start date
We use 20% as the limit when to abandon a strategy.
Since we size using LSP (Ralph Vince's method) we actually use 10% risk of hitting 20% drawdown in the next year as the risk level. This is based on the assumption that future returns will be same as walk-forward and real trading results. This assumption is obviously an additional risk.
One benefit with LSP is that it provides a objective and controlled way of shutting down a strategy that stops working. Of course there's still the risk of not being able to scale out in time (e.g. overnight risk) which needs to be addressed separately.
/Hugin
Since we size using LSP (Ralph Vince's method) we actually use 10% risk of hitting 20% drawdown in the next year as the risk level. This is based on the assumption that future returns will be same as walk-forward and real trading results. This assumption is obviously an additional risk.
One benefit with LSP is that it provides a objective and controlled way of shutting down a strategy that stops working. Of course there's still the risk of not being able to scale out in time (e.g. overnight risk) which needs to be addressed separately.
/Hugin
If I'm simply long calls or puts, I've backtested that if you see it decline 50%, you're almost always wishing upon a star that it will come back. 30% is another good waypoint. You really shouldn't be going down much if it's going to be good. 10% is no big deal as it comes with spreads and maybe 1-2% slippage from your equivalent stock entry.
For stocks, a 2% starts to concern me a little, but I wouldn't leave until 5%. I position trade for a minimum 10% gain and trade options only for doubles btw, I'm not a daytrader.
On an account, 20% is a good area to pack it in and re-up. It takes so much good work to rebuild from drawdowns of more than that. It's not worth it even if it that position comes back. A couple of those and you need to achieve a double to get your account flat.
Wilt
For stocks, a 2% starts to concern me a little, but I wouldn't leave until 5%. I position trade for a minimum 10% gain and trade options only for doubles btw, I'm not a daytrader.
On an account, 20% is a good area to pack it in and re-up. It takes so much good work to rebuild from drawdowns of more than that. It's not worth it even if it that position comes back. A couple of those and you need to achieve a double to get your account flat.
Wilt
