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My fear of DD is directly related to how confident I am in the persistance
of my system's long term edge. Risk of ruin also enters significantly into
the equation, although with fixed fractional trading, RoRuin become
essentially zero with large account sizes. When people say they can only
handle "x%" DD or pain, what I hear is that they are not confident that the
system will come back after suffering that x% DD. I only trade dull, boring,
unimaginative, but ultimately reliable (in the long term) trend following
strategies on a broad diversified portfolio that I have 100% confidence will
always come back to profit after every DD so that I can leverage it to the
hilt, within margin constraints, to get those triple digit annual returns.
Granted, my futures account only contains dollars that I am don't care about
emotionally...
Just my humble opinion...
Scott Hoffman
Issaquah, WA
>Then I introspect. I ask myself "what size
>loss would be SO PAINFUL that I wouldn't be
>able to continue trading?" I look at
>the Gain curve and the Pain curve and I
>try to strike a balance between greed (1)
>and fear (2). Then I choose a betsize
>and resign myself to the fact that I'm
>going to see a drawdown as big or bigger
>than was encountered in the >1500 trades
>of historical backtesting.
>
>But, let me emphasize, this is just me.
>I am not you. I am not Ralph Vince. I
>don't know how much drawdown you can stand;
>I can (just barely) stand 40%. Ralph Vince
>states that if you can't stand a 95%
>drawdown, you shouldn't be trading.
>
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