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Drawdown: how does it affect your trading and account

  • #81
  • Aug 29, 2017 9:12pm Aug 29, 2017 9:12pm
Quoting TGS
{quote} In essence, successfully managing drawdown is literally the difference between being a successful trader or not. Keeping your trading lot size the same, you could increase the account deposit in order to have a smaller drawdown. The problem with that is, most people don't have a large deposit to work with so you have to work on the trading technique in order to develop a low drawdown system.
Drawdown is not your enemy. Catastrophic risk is. The trick lies in assessing the difference. Drawdown is a necessary part of any trading strategy. If you don't have them then that is a clear sign that you are misguidedly handing market risk. For example Martingale variants and grid traders hide risk through risk pumping their equity curve. Your drawdown is a necessary part of releasing pent up market risk. Healthy equity curves have significant drawdown over many different market cycles and your worst drawdown will always be ahead of you.

The drawdown signature is a key part of recognising a robust strategy. If you have a linear or close to linear equity curve your sample size is either too small or you are deceiving yourself through risk avoidance strategies.
  • #82
  • Aug 29, 2017 9:18pm Aug 29, 2017 9:18pm
Quoting Copernicus
{quote} Drawdown is not your enemy. Catastrophic risk is. The trick lies in assessing the difference. Drawdown is a necessary part of any trading strategy. If you don't have them then that is a clear sign that you are misguidedly handing market risk. For example Martingale variants and grid traders hide risk through risk pumping their equity curve. Your drawdown is a necessary part of releasing pent up market risk. Healthy equity curves have significant drawdown over many different market cycles and your worst drawdown will always be ahead of you....
From what I can tell, I believe this user is managing drawdown honorably as you describe it.
  • #83
  • Aug 29, 2017 9:23pm Aug 29, 2017 9:23pm
Quoting TGS
{quote} From what I can tell, I believe this user is managing drawdown honorably as you describe it.
Yep. It doesn't take much to identify the difference between a healthy equity curve and a disaster waiting to happen. Investors are very aware of the tricks of the trade and avoid the linear curve like the plague unless you are very diversified and can demonstrate how you manage risk to their satisfaction.
  • #84
  • Aug 30, 2017 3:31am Aug 30, 2017 3:31am
back from prospecting ----- empty handed
people leave, but this thread will go on for ever
  • #85
  • Aug 30, 2017 4:55am Aug 30, 2017 4:55am
Quoting Aussi
back from prospecting ----- empty handed
Damn. That pretty well sums up my fossicking history. :-)
  • #86
  • Aug 31, 2017 12:46am Aug 31, 2017 12:46am
Let me ponder on the point a little. Drawdown, IMHO, amount of pips or money (EUR, USD, whatever is yours) that is going in a direction (red) opposite from BE. So far, only DD size in % to trading account has been discussed. From 1% up to 95%. Whatever is number of your trading accounts, one may calculate the DD as % of overall (all) accounts or any of them separately. It's clear.

I assume that DD tolerance (stop and take the loss or continue watching the bleeding) may well be connected with an individual pain threshold. Then, even, e.g., 1% might not be acceptable: 1M is an accumulated (overall) trade account size and one may not lose more than individually symbolic/ catastrophic 9999 and forces himself to square all (book the loss at 9999) in pain triggered panic, despair or being mentally frozen...

For me, I keep my tolerated DD level within my Pain Threshold as well. Generally, in trading one should not be rigid and make healthy and objective decisions due to market context.

Usual or notorious story by unskillful traders: price gets 1 - 5 pips over your tolerated DD/Pain Threshold and reverses back in your favour.
Not to Advance is to Fall Back
  • #87
  • Edited Sep 1, 2017 1:06am Aug 31, 2017 11:25am | Edited Sep 1, 2017 1:06am
Quoting HudithePfupf
{quote} Since you would be a very rare and endangered species as a profitable retail trader, I am interested to see if you can show profitablity that goes beyond what can be achieved by luck over a certain time period. Convince me.

Sure. No problem. I have a system for Binary options. See attached monthly returns table. I risk 1% of my capital on each trade and I reset this unit size at the beginning of each calendar month, the maximum draw down from peak for this system is in the region of 15% assuming a 1% unit size. I back tested it to 2008 and it has been running forward since 1 December 2015. I have a second system for OTC Forex, which is currently in live trial, I am risking 0.5% per trade and assuming that trade size it also has a maximum draw down from peak in the region of 15%, first month live just shy of 4% I am expecting in the region of 30-40% per year on that one which has been tested all the way back to 2003 with only one minor losing year.

Please see attached, live trading results from Orac, the Binary system and Simulated results for Zen, the OTC system

If you are old enough to remember Blake's 7 you will realise where I got those names from

The trades are executed by my bespoke systems running on three servers in the heart of London, I am a software engineer by training.

It is possible to convince me to show a record of each trade and my broker statements, but not in a public forum.
Attached File(s)
File Type: pdf Zen theoretical.pdf   51 KB | 492 downloads
File Type: pdf Orac.pdf   45 KB | 481 downloads
I live entirely from the growth of my personal trading account
  • #88
  • Aug 31, 2017 2:48pm Aug 31, 2017 2:48pm
Quoting Copernicus
Hi J The critical things you need to know to evaluate your systems robustness are as follows.......
Quoting Copernicus
Crumbs Dave.....sorry for the delay....I got sidetracked...........
Quoting Copernicus
Drawdown is not your enemy. Catastrophic risk is........
A trilogy of outstanding posts.
  • #89
  • Aug 31, 2017 5:36pm Aug 31, 2017 5:36pm
Quoting hanover
{quote} {quote} {quote} A trilogy of outstanding posts.
Cheers H. Only eleventy billion more and I will come close to your track record :-)
  • #90
  • Sep 1, 2017 4:25am Sep 1, 2017 4:25am
Quoting GuyBaker
{quote} ... It is possible to convince me to show a record of each trade and my broker statements, but not in a public forum. {image} {image}
Not necessary - The tables are sufficient to me.....

  1. sorry, but these tables do not convice me at all.
  2. Binary option system? A proffessional should be able to run a similar model with a better cost and counterparty risk structure by using other financial instruments.
  3. You show a simulation with 10000 pounds capital and show average returns of about 80% a year.... You would beat the very best quant firms. That is highly unlikely, isn't it?
  4. In the Zen table you summarize annual rewards from 2003 - 2016 (116808) and compare it to the Max Drawdown of a single year (6499) and list a R/MD of 18. You think this is a reasonable way to do it?
  5. Just the way you display your "results" of a backtest tells me that there is a very small chance that you are what you claim to be.

I am not sure whether you are (or soon are) an other victim of this industry or if you are fishing in this forum. If I am wrong sorry, if I am right... maybe it's a good advice to dedicate your skills towards a real job.

GL, Hudi

  • #91
  • Sep 1, 2017 1:04pm Sep 1, 2017 1:04pm
Quoting HudithePfupf
{quote} Not necessary - The tables are sufficient to me..... sorry, but these tables do not convice me at all. Binary option system? A proffessional should be able to run a similar model with a better cost and counterparty risk structure by using other financial instruments. You show a simulation with 10000 pounds capital and show average returns of about 80% a year.... You would beat the very best quant firms. That is highly unlikely, isn't it? In the Zen table you summarize annual rewards from 2003 - 2016 (116808) and compare it to the Max Drawdown...

You are plain wrong. Binaries enable a trader to profit on very small movements, I have a win/loss rate of 60% typical payout on win is 81% of the contract size, I trade approximately 100 trades per month. I'll let you do the math.

Yes my returns are very high, but not scalable to the size a quant firm would require, I am only trading with just over £200k. It's all about using smart leverage, its one of the few advantages a small scale trader has.

I have nothing to prove here, I do not need clients, sure some of my friends and family follow my signals, but as my strap says, all of my income comes from trading my own money, last month I made over £20k, in total I've made over £125K trading so called impossible binaries since 1 December 2015 and 2,110 actual trades with real money. You think it is too good to be true, so what? Everybody thinks that, and most people are losers.

You talk of being a professional, so are you profitable?
I live entirely from the growth of my personal trading account
  • #92
  • Sep 1, 2017 1:44pm Sep 1, 2017 1:44pm
Quoting HudithePfupf
{quote} Not necessary - The tables are sufficient to me..... sorry, but these tables do not convice me at all. Binary option system? A proffessional should be able to run a similar model with a better cost and counterparty risk structure by using other financial instruments. You show a simulation with 10000 pounds capital and show average returns of about 80% a year.... You would beat the very best quant firms. That is highly unlikely, isn't it? In the Zen table you summarize annual rewards from 2003 - 2016 (116808) and compare it to the Max Drawdown...

On the Zen tables. I only trade it with 0.5% so you need to look down the sheet to find those numbers, the max draw down represents the absolute max draw down in the period, of course that is the same as the worst year. Zen is in forward test, we will see if the numbers turn out to be similar to the back testing, early indicators are positive but I will run it for at least 1,000 trades before risking more on it.

On getting a real job, thanks for your advice but I haven't had what you would call a real job since 1989, after setting up two internet business in 1996 and 2003 I pretty much retired through delegation at the age of 40, 2008 killed me though and that's when I started to learn to trade, years later having made probably every mistake it is possible to make, I developed a reliable system, with a second in trial, this is how I live, I am free, manage my servers and travel around.

The only reason I write on the forum of losers is to help the occasional diamond in the rough realise that it can really be done, very occasionally I found something perhaps obliquely useful on these pages and I am trying to pay that value forward.
I live entirely from the growth of my personal trading account
  • #93
  • Sep 1, 2017 3:20pm Sep 1, 2017 3:20pm
I'm trading 2 small accounts -- 1 for larger equity requirement currencies (GBP pairs, EUR pairs, etc) and 1 for smaller equity requirement currencies (AUD, CAD, NZD, etc) and I can tell you it's easy on a small account to leverage your entire account and have your broker stop you out because of a lack of equity during retracements -- then, when your trade goes your way for 100+ PIPs it's brutal to look at -- especially if it's overnight and your eyes haven't adjusted to just then waking up.

Somebody taking big drawdowns risks a LOT and in my estimation is not very accurate in their knowledge of trading and the markets they trade. All I have to do is think of the profit that is not there in a drawdown to know that with certainty -- those drawdowns could very well be profits either in that currency or a correlating currency.

It doesn't take much skill to have a big drawdown -- in my opinion.
  • #94
  • Sep 1, 2017 5:17pm Sep 1, 2017 5:17pm
Quoting HudithePfupf
{quote} Not necessary - The tables are sufficient to me..... sorry, but these tables do not convice me at all. Binary option system? A proffessional should be able to run a similar model with a better cost and counterparty risk structure by using other financial instruments. You show a simulation with 10000 pounds capital and show average returns of about 80% a year.... You would beat the very best quant firms. That is highly unlikely, isn't it? In the Zen table you summarize annual rewards from 2003 - 2016 (116808) and compare it to the Max Drawdown...
i have never know people who play binary options make money and withdraw it
people leave, but this thread will go on for ever
  • #95
  • Sep 1, 2017 11:28pm Sep 1, 2017 11:28pm
Quoting GuyBaker
{quote} You are plain wrong. Binaries enable a trader to profit on very small movements, I have a win/loss rate of 60% typical payout on win is 81% of the contract size, I trade approximately 100 trades per month. I'll let you do the math. Yes my returns are very high, but not scalable to the size a quant firm would require, I am only trading with just over £200k. It's all about using smart leverage, its one of the few advantages a small scale trader has. I have nothing to prove here, I do not need clients, sure some of my friends and family follow...
It's nearly impossible not to make substantial money if you're trading with 200K. Try making a decent percentage off of a $2000 account and you'll have my respect. 20K profit on a 200K account is not really impressive. Anyway, you're lucky that you have that kind of capital to trade with
  • #96
  • Sep 2, 2017 2:27am Sep 2, 2017 2:27am
Quoting TGS
{quote} It's nearly impossible not to make substantial money if you're trading with 200K. Try making a decent percentage off of a $2000 account and you'll have my respect. 20K profit on a 200K account is not really impressive. Anyway, you're lucky that you have that kind of capital to trade with
That's stupid...Just because you have 200k capital it doesn't mean that you're automatically profitable...And it's a lot easier to trade a 2k account than a 200k account.
"Men Who Can Both Be Right & Sit Tight Are Uncommon" ~ Jesse Livermore
  • #97
  • Sep 2, 2017 5:14am Sep 2, 2017 5:14am
Quoting michisuperfr
{quote} That's stupid...Just because you have 200k capital it doesn't mean that you're automatically profitable...And it's a lot easier to trade a 2k account than a 200k account.
No it isn't... it's exactly the same

Quoting TGS
{quote} It's nearly impossible not to make substantial money if you're trading with 200K. Try making a decent percentage off of a $2000 account and you'll have my respect. 20K profit on a 200K account is not really impressive. Anyway, you're lucky that you have that kind of capital to trade with
What ?

20k profit on a 200k account is 10% why would that not be impressive ?
  • #98
  • Edited 7:01am Sep 2, 2017 6:41am | Edited 7:01am
Quoting Don96
{quote} No it isn't... it's exactly the same {quote} What ? 20k profit on a 200k account is 10% why would that not be impressive ?
Theoretically maybe yes...But from my experience...I've seen many people making incredible/good returns on small accounts, but no one could keep them up as the account grown...
"Men Who Can Both Be Right & Sit Tight Are Uncommon" ~ Jesse Livermore
  • #99
  • Sep 2, 2017 7:01am Sep 2, 2017 7:01am
Quoting Aussi
A valid point of trading accounts is the so called draw down how does it affect your trading and how does it affect your account as a trader .

brijon is the best one who explained the DD and the equity .

i advise you all to go to you tube ans search for his three strong direct films about DD and equity.

by the way also here in FF there are 3 threads for brian john and the three of them have many aspects and films about the DD and equity regardless his "odd" way of trading at which i consider it one of the best strategies , but :

IF YOU WANT TO UNDERSTAND EQUITY AND DD AND HOW THE BROKERS ARE F.KING YOU , I WILL EXPLAIN IT HERE IN BRIEF :

FIRST RULE OF WHY DD IS INCREASING:
WHENEVER YOU MAKE A TRADE BUY OR SELL, OR BOTH AT THE SAME TIME (HEDGING), THE BROKER WILL CUT OUT THE SPREAD DIRECTLY FROM THE BALANCE, SO YOUR EQUITY WILL BE IN NEGATIVE THE SPREADS ( I MEAN IT WILL BE REDUCED BY FLOATING OF THE VALUE OF THE SPREADS )

AND I CAN PROVE THIS BY EA TO ANYONE WHO DOES NOT BELIEVE THIS . THIS IS CALLED TRADE PRICE OR TRADE COST WHAT IS SO EVER YOU LIKE TO CALL IT CALL ..... IT IS EATING YOUR EQUITY EACH TIME YOU MAKE EITHER BUY OR SELL TRADE OR BOTH OF THEM.

SECOND RULE OF WHY DD IS INCREASING :
MARGIN
YES THE SHIT VALUE THAT THE BROKER IS REMOVING FORM YOUR ACCOUNT BALANCE TO HIS POCKET TO "FALSELY PROTECT" YOUR ACCOUNT.
AND TO EXPLAIN IT MORE TO MAKE YUO UNDERSTANDING IT, TRY TO DIGEST THIS EXAMPLE :
YOUR ACCOUNT BALANCE NOW IS 1000 USD
YOU ARE CLEVER TRADER YOU WANT TO FOOL THE BROKER AND THE MARKET BY HEDGING TWO TRADES BUY AND SELL

SO

YOU MAKE BUY TRADE FIRSTLY

ASSUMING THE SPREAD IS 30 POINTS = 3 PIPS

ASSUMING YOUR ACCOUNT LEVERAGE IS 1:500 SO YOUR MARGIN IS 2.5 USD PER 0.01 LOT

YOUR TRADE SIZE IS 0.1 LOT


1000 USD - SPREAD (30POINT X 0.1 ) - (2.5/0.01*0.1) = 747 USD NOW YOUR EQUITY

THEN YOU MAKE THE SECOND TRADE.... BUT WAIT THE BROKER IS TELLING YOUR THE HEDGE IS 100% OH GOOD GOOD YOU WILL SAY ... AS SOME BROKERS ARE HEDGING 50% AT WHICH MORE FU..KING SHIT DISASTER..

SO NEW SELL TRADE
SPREAD 30X0.1 = 3
THEN
0.1 X 2.5/0.01 WOW = 250 IN NEGATIVE HEDGE IS 100% SO YOUR ACCOUNT IS STILL 747 AND

SO FINAL ACCOUNT REALLY IS IS 744 ( AFTER REMOVING THE 3 USD SELL SPREAD)

BUT WAIT THE FLOATING LOSS MUST BE SHOWN HERE, AND HERE THE DD BEGINS TO EAT YOUR BRAIN INSIDE OUT : -6 THEN IT BEGIN TO INCREASE OR DECREASE AS PER THE PRICE DIRECTION

SO

YOU ARE NOT TRADING NOW 1000 ...NO SIR

YOU ARE TRADING 741 AND THIS IS YOUR EQUITY

IF YOU MAKE ANOTHER TWO TRADES

THEN YOUR EQUITY WILL BE LESS

THE YOUR DD WILL BE FASTER TO WIP OUT YOUR ACCOUNT

THE EQUITY S THE IMPORTANT KEY IN THE FOREX EQUATION
GUYS BE AWARE FROM HUNTING YOUR STOP LOSSES BY YOUR BROKER & BY "GHOSTS"
  • #100
  • Edited 10:03pm Sep 2, 2017 9:51pm | Edited 10:03pm
i have blocked a few people because of there want to push a agenda , ''' trying to sell software or signals or pamm accounts "" please traders try to keep on the subject its a worth while subject for all of us

i am pushing nothing at all some peoples remarks here are less than truthful , learning for new traders and us old ones to see how people trade and whats important to trading , all i have done is tell people what i have done when trading ,


""""" ITS IMPORTANT TO READ AND LISTEN AFTER YOU DO YOU KEEP THE BITS YOU LIKE AND TOSS THE REST INTO THE BIN """"
people leave, but this thread will go on for ever
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