Dealing with Drawdowns

Discussions about personal psychology for the individual trader.
Post Reply
J D Canning
Roundtable Fellow
Roundtable Fellow
Posts: 74
Joined: Thu Jul 03, 2008 6:35 am
Location: Surrey, UK
Contact:

Dealing with Drawdowns

Post by J D Canning » Wed Apr 01, 2009 4:40 pm

I am new to mechanical trend following and am currently experiencing my first major drawdown (30%). I have traded before and have experienced similar sized drawdowns, but have to say that I derive a certain degree of comfort from Trading Blox and the fact that my backtested system has "been here before". The only difference is that I wasn't trading it. Over 20 years, the fact that the system has recovered from such drawdowns on a number of occasions gives me confidence that it will do so again.

Just thought I'd share my thoughts at this time as I'm sure I'm not the only person in such a situation.

Nussgipfel
Roundtable Knight
Roundtable Knight
Posts: 115
Joined: Sun Nov 20, 2005 12:02 pm
Location: Westport

Post by Nussgipfel » Thu Apr 02, 2009 5:40 am

Just wonder how many consecutive losses did you incur? How much more pain would you be willing to accept? Thank you very much for sharing your experience as you are going through this right now and good luck going forward. May you be up 30 % very soon!

Paul King
Roundtable Knight
Roundtable Knight
Posts: 207
Joined: Mon Feb 23, 2004 9:13 am
Location: Vermont, USA
Contact:

Post by Paul King » Thu Apr 02, 2009 11:07 am

While the depth and duration of any particular draw-down is not knowable, one thing that you can be sure of is that recovery from it can only occur if you are willing and able to continue trading.

Historical testing can only ever be a rough (but useful) guide to "what bad looks like". My advice would be to be especially careful to continue to accurately trade your plan - trading errors caused by stress caused by losses can easily make the situation much worse than it needs to be.

A back-test doesn't suffer from additional losses due to inaccurate trading caused by the pain of enduring a draw-down...

Hope this helps

Paul

J D Canning
Roundtable Fellow
Roundtable Fellow
Posts: 74
Joined: Thu Jul 03, 2008 6:35 am
Location: Surrey, UK
Contact:

Post by J D Canning » Thu Apr 02, 2009 11:39 am

Thanks for the feedback guys. For the record, thje maximum number of consecutive losing trades has been 7, and 22 of the past 32 trades have been losers. The performance so far is less than the maximum drawdown encountered in backtesting and well within the paramters of the Monte Carlo simulation. I am as relaxed as it is possible to be under these circumstances and have no reason to suspect that my system has died as a result of forever changed market conditions caused by the late 2008 turmoil. Fortunately, there are still many thousands of emotional human beings trading those markets out there. Long may it continue.

LeviF
Roundtable Knight
Roundtable Knight
Posts: 1428
Joined: Mon Dec 22, 2003 12:24 pm
Location: Des Moines, IA
Contact:

Post by LeviF » Thu Apr 02, 2009 11:41 am

I started trading forex exactly 1 year ago. As of February my account was up about 12%. March was brutal and now I am 12% below my starting capital (20% DD). Last night my account dropped 5% thanks to the TWD, CZK, & SGD. It has been a rough road, but considering everything that has gone on in the world in the last 12 months i'm not too disappointed with the performance.

Post Reply