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If your system is good, you shouldn't second guess it. Second guessing it will
lead you to miss the perf when it resumes. You could have 20 losers in a row
and the 21st makes it all back. You will hurt yourself mentally a great deal
should this happen.
If you still second guess it, it means you either know the system is curve
fitted, or know you are trading too big a size.
In the first case, stop I would it right there and be honest with myself. In
second trade half the size or trade minis, but keep trading.
To give a measure of real life drawdowns, in the bad scenarios, they tend to
grow to close to twice the size and duration of what the test showed in the
last 5 years, with final profitability somewhere between 50 and 70% of test
results.
My 2 cents of experience,
Gwenn
Brian Keith Voiles wrote:
> My daytrading system for the S&P 500 must be in a draw-down... is there any
> data,
> studies, or information in general about how long a draw-down period should
> last? I'm getting stopped out left and right... I've decided to go back to
> paper
> trading until the draw-down period is over -- hopefully I've got enough
> money in
> reserve to cover my butt in the meantime.
>
> Although the last 5 trading days in March didn't work out very well for me
> (that's
> when my draw-downs started) I still made 260% ROI after commissions and
> other costs.
> In February I made a 464% ROI... with just 1 losing day... a loss of $423.
> In January I made an 83% ROI... with just 1 losing day... a loss of $2,020.
>
> Now, here we are in the end of March and April and I've lost 31.7 points
> ($7,925)
> in the last 2 trading days... due to getting stopped out from the
> whipsawing in
> the price movement. (My research shows an optimum stop placement to be
> 4.8 points in the S&P -- Risking $1,200 per trade).
>
> I understand draw-downs are inevitable... but being fairly new to this game
> (just
> under 2 years) I'm concerned because this is how I've been making my living
> for over a year now. Any advice or suggestions are welcomed.
>
> Warmly,
> Brian Voiles
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