Richard Dennis and Drawdowns

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BARLI
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Post by BARLI » Wed Oct 18, 2006 7:45 pm

Forum Mgmnt, there is one question thats been bothering me: what if Richard Dennis lost half of what he made because of following his trading system ( no clue which one he was trading back then) too closely without any discretion?

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Post by Forum Mgmnt » Wed Oct 18, 2006 11:39 pm

I'm not sure what you are asking. Are you asking me why Richard Dennis lost half of his account at some point in time?

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BARLI
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Post by BARLI » Thu Oct 19, 2006 1:47 am

Exactly. I remember he was talking that when he and Eckhardt were in a draw down they went back to testing and came up with some new trading systems and market discoveries. So I compared Richard Dennis to Tom Baldwin and asked myself: "if Richard kept on trading in the pit (or upstairs) with his discretion only would he end up making even more?" I'm asking cos its really interesting how much discretion should be used when running mechanical systems. Monroe Trout told Schwager that he'd probably make half of what he made if he would follow his systems blindly and other CTA's wouldn't make even a half ...

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Post by Forum Mgmnt » Thu Oct 19, 2006 8:17 am

I don't actually know this to be true from hearing it from Rich, but I never heard anyone in the know dispute it: the story on the street and among the Turtles was that Richard's drawdowns when trading public money came from USING discretion. His systems were good, it was when he overrode the signals and did something else that he ran into problems.

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BARLI
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Post by BARLI » Thu Oct 19, 2006 1:45 pm

I believe its more psychology related: when we get into drawdowns we start questioning our systems(of course not a case of Richard Dennis), the losses are still fresh in the mind and to have them on the next trade will hurt even more, so a trader tries to "play around" with the signals and outsmart it.
I'm biased there are differences between using discretion when trading long term and short term. Using discretion when trading short term(2-3 days hold) can get you a better fills : instead of getting filled on the open when system tells you to, you wait , market goes down, you get a fill on a close by this minizing the risk market going against you. When trading Long term systems using discretion can only hurt the performance.

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