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Ken,
I thought I'd post a couple of scenarios
that might get you to rethink
what you wrote below.
Scenario #1
You enter a trade with $10,000 and it goes
to a value of $15,000.
It then reverses and gives you a loss of
10% or $1,500.
You maintain the position and it doesn't
change.
Scenario #2
You enter a trade with $10,000 and it goes
to a value of $15,000.
You sell.
You enter another trade with the full
$15,000.
It immediately reverses and gives you a
loss of 10% or $1,500.
You maintain the position and it doesn't
change.
By your statement, you would feel that
scenario #1 would somehow be more
acceptable that scenario #2 and this might
be due to a feeling that what
you put into a trading account ($$$$) means
more than the unrealized profit($$$$)
which <FONT face="Courier New"
size=2>might accrue going forward.
By extension, do you feel that "it's not a
loss until I take it"?
The money in your account that is in the
form of unrealized gain/loss is as real
as the equity in the account. To use
either, all that needs to be done is
reach and get it.
Did you ever do a complete financial plan
for your personal needs?
They are very helpful in understanding the
true effects of a DD.
If, however, you are like 90% of the
population, you are "in the market" to
"make money" without a financial
plan. You then are spending time <FONT face="Courier New"
size=2>designing a stock
market system without understanding what is
needed from it. How can it work?
(An aside for all those who posted comments
about money management and
what is first. Read the two
sentences immediately above.)
Please don't read this as mean in
spirit. I'm just a pretty direct person.
I hope this helps.
Regards,
Tony
>>Further, this parameter
assumes a differentiation in psychology: to wit:>>equity drawdowns
from levels that represent positive returns are less>>impactful on
psyche that "going underwater", ie, having absolute>>drawdowns from
entry (out of pocket paper losses). If I gain 25% on a>>position and
it retraces 50%, then I have a Maxdd on the trade of 50%,>>but I am
still ahead 12.5% in terms of my entry. Doesn't this affect
me>>differently than having a 10% drawdown right from the beginning of
the>>trade? Sure it does.
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