Drawdown reduction ideas? | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Drawdown % vs. Profit 11 replies

What drawdown does everyone use? 18 replies

The lowest drawdown system ever been published? 11 replies

How do I read a statement (drawdown)? 0 replies

Delta&DrawDown? 0 replies

Drawdown reduction ideas?

  • #1
  • First Post: Jan 10, 2012 12:56pm Jan 10, 2012 12:56pm
Hi,
I am contemplating since a while on how to reduce drawdown while maintaining the return on account. Maybe you guys got some good ideas besides what I already know.

Assumption: We have a winning system that has a clearly definable edge and produces a rising equity curve over a couple of thousand trades.

Solutions for drawdown reduction:
1. Diversification across uncorrelated instruments
2. Combine the winning system with an inversely correlated or uncorrelated winning system
3. Combine your standard parameters of your winning system with different parameters of the same winning system, that will reduce drawdown overall. (Cause one parameter catches the move while the other doesn't)
4. Diversification of time-frames (although this is the weakest solution)

Any other qualified ideas from you guys?
  • #2
  • Jan 10, 2012 1:13pm Jan 10, 2012 1:13pm
Quoting Custos
Hi,
I am contemplating since a while on how to reduce drawdown while maintaining the return on account. Maybe you guys got some good ideas besides what I already know.

Assumption: We have a winning system that has a clearly definable edge and produces a rising equity curve over a couple of thousand trades.

Solutions for drawdown reduction:
1. Diversification across uncorrelated instruments
2. Combine the winning system with an inversely correlated or uncorrelated winning system
3. Combine your standard parameters of your winning system with...
I've actually tested solution 1 and 2 for my own system
1.This will not reduce drawdown. YOu will have the same results spread over multiple markets.
2. this is probably the best solution. since you would be system hedging if the markets are negatively correlated. But again, this will reduce your gains overall too.

for me, i just implement max drawdown limit on a given day to control drawdown since i only trade one instrument.
  • #3
  • Jan 10, 2012 1:17pm Jan 10, 2012 1:17pm
Quoting hilmy83
I've actually tested solution 1 and 2 for my own system
1.This will not reduce drawdown. YOu will have the same results spread over multiple markets.
2. this is probably the best solution. since you would be system hedging if the markets are negatively correlated. But again, this will reduce your gains overall too.

for me, i just implement max drawdown limit on a given day to control drawdown since i only trade one instrument.
hm, interesting.
I actually had my greatest success with 1 and 2. Drawdown decreased dramatically while the return on account stayed the same.
  • #4
  • Jan 11, 2012 1:41pm Jan 11, 2012 1:41pm
nice, it seems I thought about everything concerning drawdown reduction. Thanks for your help guys!
  • #5
  • Jan 12, 2012 1:51am Jan 12, 2012 1:51am
  •  rayzeel
  • | Joined Nov 2008 | Status: Automated/DiscretionaryTrader/Coder | 37 Posts
You simply have to have a couple of different curves (dif markets or parameters). The DD must be in different places and thats it. Ive done somethink like this already. Ive combined 3 sets of one EA and overal DD have been reduced by 20 percent points. Its very big reduce IMO. I dont see any better option to reduce DD.
  • #6
  • Jan 12, 2012 1:58am Jan 12, 2012 1:58am
Trade less and target higher returns (higher aggregate R:R)... I guess from a technical perspective you could say trade higher TF's or at least be picky in getting in line with a stronger source of momentum.

I find my biggest drawdowns come when I've taken 15+ trades in a week. Usually I find that if I simply held the frst trade I made at the start of the week I'd be better off.

I'm about to do a test on diversifying accross different securities even though they are quite correlated... What isn't correlated with Foreign Exchange? Anyway my aim is to be able to increase my risk (without increasing drawdown).
Time hides Nothing
  • #7
  • Jan 12, 2012 1:25pm Jan 12, 2012 1:25pm
Quoting rayzeel
You simply have to have a couple of different curves (dif markets or parameters). The DD must be in different places and thats it. Ive done somethink like this already. Ive combined 3 sets of one EA and overal DD have been reduced by 20 percent points. Its very big reduce IMO. I dont see any better option to reduce DD.
thanks for your post. Yeah, I am already doing something like that.
  • #8
  • Edited 1:42pm Jan 12, 2012 1:28pm | Edited 1:42pm
Quoting CindyXXXX
Trade less and target higher returns (higher aggregate R:R)... I guess from a technical perspective you could say trade higher TF's or at least be picky in getting in line with a stronger source of momentum.

I find my biggest drawdowns come when I've taken 15+ trades in a week. Usually I find that if I simply held the frst trade I made at the start of the week I'd be better off.

I'm about to do a test on diversifying accross different securities even though they are quite correlated... What isn't correlated with Foreign Exchange? Anyway my aim...
well, you have to understand that my systems are in perfect balance between shooting for high profits and compounding. If I go for more profits per trade, my overall profits will decrease due to the worse compounding effect. Funny thing is that being picky has actually decreased the profits overall (of course win-loss increased, but profits decreased).
  • #9
  • Jan 12, 2012 1:36pm Jan 12, 2012 1:36pm
Hi traders, I been doing this for some time, not only I lost money. Also, I'm losing sleep.........Please help.....!!! Give me some website or material that I can refer to.....
  • #10
  • Jan 12, 2012 6:14pm Jan 12, 2012 6:14pm
Quoting dknyjns
Hi traders, I been doing this for some time, not only I lost money. Also, I'm losing sleep.........Please help.....!!! Give me some website or material that I can refer to.....
Start here http://www.forexfactory.com/forumdisplay.php?f=56
  • #11
  • Jan 12, 2012 6:22pm Jan 12, 2012 6:22pm
  •  MPP
  • Joined Jun 2007 | Status: Be yourself, everyone else is taken | 2,734 Posts
Quoting Custos
well, you have to understand that my systems are in perfect balance between shooting for high profits and compounding. If I go for more profits per trade, my overall profits will decrease due to the worse compounding effect. Funny thing is that being picky has actually decreased the profits overall (of course win-loss increased, but profits decreased).
then i'd say don't try to fix something that isn't broken - DD is irrelavant if your overall making profit, it's merely the cost of doing business.

seems to me you have looked at many options and nothing improves the outcome, the only thing not mentioned here (i'm sure you have done this) is look at the top 10% of trade and bottom 10% of trades to see what's different between them.
  • #12
  • Jan 12, 2012 7:13pm Jan 12, 2012 7:13pm
Quoting Custos
well, you have to understand that my systems are in perfect balance between shooting for high profits and compounding. If I go for more profits per trade, my overall profits will decrease due to the worse compounding effect. Funny thing is that being picky has actually decreased the profits overall (of course win-loss increased, but profits decreased).
Each to their own... I'm not one to argue with someone whos been trading longer than me.

I'm of the opinion though that if you're getting undesirable drawdown then you're either 1) risking too much or 2) trading too much (too much aggregate risk). Considering you're edge is sharp that is.

I guess it's hard to comment though because we probably trade in completely different ways.

Good luck with it anyway.
Time hides Nothing
  • #13
  • Jan 12, 2012 11:55pm Jan 12, 2012 11:55pm
Quoting MPP
then i'd say don't try to fix something that isn't broken - DD is irrelavant if your overall making profit, it's merely the cost of doing business.

seems to me you have looked at many options and nothing improves the outcome, the only thing not mentioned here (i'm sure you have done this) is look at the top 10% of trade and bottom 10% of trades to see what's different between them.
well, actually most of these options decreased drawdown. Thanks for your suggestion with the top 10% and bottom 10% thing.
  • #14
  • Jan 13, 2012 12:00am Jan 13, 2012 12:00am
Quoting CindyXXXX
Each to their own... I'm not one to argue with someone whos been trading longer than me.

I'm of the opinion though that if you're getting undesirable drawdown then you're either 1) risking too much or 2) trading too much (too much aggregate risk). Considering you're edge is sharp that is.

I guess it's hard to comment though because we probably trade in completely different ways.

Good luck with it anyway.
I don't really have undesirable drawdown. I just wanna try out how I can tune up my profits. And that can only happen if I reduce my max drawdown further. E.g.: Take a system that has a max 30% drawdown with a 100% profit at the same time. Now if I am able to reduce the max drawdown to 20% while maintaining the 100% profits, I can then risk more to get back to my max drawdown of 30% and now make maybe 150 to 200%. Why so much more? Cause of the compounding effect.
  • #15
  • Jan 13, 2012 12:03am Jan 13, 2012 12:03am
Quoting Custos
well, you have to understand that my systems are in perfect balance between shooting for high profits and compounding.
If that's the case then isn't a little bit of pain worth it?

Increase emotional fortitude by 37%?
  • #16
  • Jan 13, 2012 12:15am Jan 13, 2012 12:15am
Quoting frankkn
If that's the case then isn't a little bit of pain worth it?

Increase emotional fortitude by 37%?
guys, I DON'T want your opinions on IF I should reduce drawdown. I want your ideas on HOW you would approach drawdown reduction.
  • #17
  • Jan 13, 2012 12:16am Jan 13, 2012 12:16am
THe best method that works fine for me is - risk only 2-3% from your account... But drowups are also reduced
go go go
  • #18
  • Jan 13, 2012 12:25am Jan 13, 2012 12:25am
Quoting @40
THe best method that works fine for me is - risk only 2-3% from your account... But drowups are also reduced
yeah, I am already using a fixed fractional approach.
  • #19
  • Jan 13, 2012 3:25am Jan 13, 2012 3:25am
currently i compound my position everyday. The problem is of course when i hit a bad day, i'm at the maximum position and it can wipe several days of profit. The upside is of course a quick parabolic equity curve when you/re winning.

i thought of using fixed size for a span of time before increasing it i'm thinking that would smooth out the effects of drawdowns on bad days/sessions.

i also thought about limiting losses to some percentage of the profit made to date. If i do that while compounding everyday, then i'm limited to how many trades i can make. if i do that using the fixed size, then it would be more practical.

just some thoughts..
  • #20
  • Jan 13, 2012 5:09am Jan 13, 2012 5:09am
Scaling into a position rather than entering fully.

Pyramiding into a position as previous orders are tp'd partially.

Its theoretical to me since it would capitalize on a strong directional move by exploiting the partial gains of previous entries. Equity curve goes parabolic during a good run.
0 traders viewing now