Drawdown: how does it affect your trading and account

Cheers Aussi :-)

waiting waiting

Crumbs Dave.....sorry for the delay....I got sidetracked.

Mate, in a nutshell perhaps the best advice I could give is as follows....... if you are new to the game then like any profession you need to do due diligence and develop the skills required to be able to competently perform your job.

To severely shortcut your journey towards proficiency in this game you just need to ask the following questions and follow this process which has frequent repeating loops.

1. Who has a demonstrated verifiable long term audited track record and what are the performance results telling you?. You will not be able to verify anything put in front of you on this forum...so it is prudent to remain skeptical. The places I look for this are the audited performance returns of the Fund managers who under regulation are required to release their performance results. Remember as speculators the best places to find ideas are not the banks but the FM's who have a similar investment philosophy. Not many guys from the banking institutions who were simply operating under the mandate of their employer in acquiring or disposing of positions have what it takes to be a retail trader...despite the ego's that might declare otherwise. The most closely aligned segment of the professional industry to us retail traders are the Fund Managers running investment portfolio's for their clients. This is where you need to look for ideas. Here is a good source.

2. Once you become familiar with these performance returns and their associated drawdowns/volatility of returns over the long term, you then need to ask yourself the question....given the skills of these managers and their access to proprietary research and resources, what are the likely level of returns and drawdown etc I can expect as a retail trader following the same generic principles as these guys? What this question will do is hopefully set realistic expectations in regards to performance expectations recognizing of course that it is very unlikely that you will outperform these guys....excluding luck of course. It will also give you an appreciation of the variation of returns attributed to varying market conditions and to the nature of the strategies deployed which is an extremely important facet to understand if you want to be trading for the long haul.

3. Now that realism has had the chance to dilute hopeful expectations you are then ready for the next research phase of the exercise before even considering trading live. What you need to do is to then undertake as much research as you can to understand the principles and practices of the professional fund managers who post these verifiable audited returns. What this exercise will do is hopefully lead you in an objective manner towards the more successful techniques that have a proven track record in delivering an edge above and beyond simple market returns. This process will allow you to sort the chaff out from the wheat and answer questions regarding what are the most successful strategies that are deployed by these fund managers. Have a look at those guys trading using TA, FA, Momentum etc. and you be the judge after you have had a chance to digest what the performance returns of the variants are. This can save you years of grief following a useless cause. During this phase of research you need to understand how these guys work. There are a plethora of excellent books and podcasts that will help you in your quest from the professionals in the industry. I can certainly give you reference lists into some of the great reads and worthwhile podcasts of substance.

4. Now that all the hard yards are done, it is then likely that more hard yards are to follow as you need to develop analytical tools and perhaps learn some programming to be able to emulate these guys.....but it is well worth the effort.

5. Then the next step is to develop the strategies required for you to be able to navigate whatever the market throws at you and be in a position to adapt to changing market conditions. Clues to the strategies to deploy will come from your research phase.

6. The next step is to be able to comprehensively test your strategies to provide a blueprint to guide your future trading activities. This process will take some time where you start to appreciate the market for what it is.

7. ....and then and only then are you ready to dip your toes into the market with a very small account that you are prepared to lose to live trade and test your strategies. This is where you find out about the psychological side of trading....and this needs to be an extended process where you have the ups and the downs and understand how your pysche fares under these conditions and what issues arise that you need to be able to control because of them.

8.......and once you are happy with all that you have then earned your yellow belt and are ready to trade for real....and then the game begins in earnest and you continuously strive to improve yourself.

Easy right.....so don't just stand there..../tic :-)

Note that I am not suggesting you take my or any other persons word for it. What I am saying is that you need to do your due diligence yourself and trust in the quantifiable and verifiable. Anything you learn on this forum you need to test for yourself to convince you of it's merit. Do not believe any mantra or sage wisdom from an unverifiable source such as this forum.

I hope this helps guide your journey a bit mate and hopefully take years off the process.

Cheers

C

PS A key requirement throughout this process is to stay humble mate and never conclude that someone is right or wrong. Just test it yourself to be able to form your own opinion. Become a scientist and test all your assumptions. This will build your skills of self-reliance which is essential in this game and prevent you from becoming just another victim that can be exploited by the sharks in this market.

Everything depends on the context. Sometimes getting the loss and being afraid of drawdown is a mistake, and switching direction is a double mistake. Sometimes being afraid of drawdowns will save your ass.

sorry mate i put this in wrong post

hehehehe :-)

I do that as well sometimes. Then I am sorry for the long winded response that was probably not relevant to the thread. Delete at your pleasure :-)

never delete it mate and all ways a pleasure to read its a breath of fresh air

thank you for your replie

Of course I'm not kidding. And, of course, I'm not suggesting that the decision to flip is dependent on the outcome of the losing trade. What I am suggesting (actually, stating emphatically) is that you are an idiot for letting a trade draw your account down by 20%. If you are that wrong, then you should consider a trade that is closer to the structure of the market and the ongoing PA.

I didn't say that. I said don't risk more than 1-2%. And if you sit by and watch your account get hit by 20%, that's not cutting your losses short, either. That's stupid. If 2% is represented by a 40 pip stop, then a 20% loss is 400 pips. A currency with an ATR of 120, might see that 400 pip loss develop over 3 or 4 days. I'm saying that somewhere in that 400 pip move and over that 3 or 4 days, you might find a proper entry and flip your view of the PA. Or you can sit there and take the loss, or at least be in a deficit position with that trade. If you want to continue defending this, please feel free.

Fully agree with feline 207. DD is very abstractive thing and could be reviewed from countless point of views.

i have had many of losing trades with big drawdowns over the years only to have them recover down the track , if i had taken a hit making my broker happy i would have lost i did not lose one cent and draw down meant nothing

Drawdown from peak is probably the single most important metric required for sound money management.

lol. You should try jumping from a plane without a shoot

draw down and getting the reversal and then into profit is better money management

Yeah yeah... and hitting a number on the roulette wheel is better than loosing all your chips, forgive me, but you come across as a classic gambler.

i did in the early days 20 years ago when i started forex trading then learnt forex the bits they do not tell you , guybaker you should not judge people and i dont gamble not even on the Melbourne cup perhaps you should stick to forex before being judgemental

Say what I see.. So you are a "mentor"? I know the smell of snake oil.. Prove me wrong.

Incidentally maximum drawdown from peak, which is used to calculate return over maximum drawdown (RoMaD) is an easy and effective way to asses the risk of an investment strategy applies to the system as a whole not an individual trade, see http://www.investopedia.com/terms/r/...down-romad.asp

Best advice ever.