We look at a back test in a very clinical way. It’s Oh, look, there’s the equity curve. That’s amazing. Over 30 years, look how much money we would have made. And yes, there’s drawdown. I’m comfortable with that level of drawdown and, Oh, it’s 30 percent winners, 70 percent losers. Yeah, that’s okay. I can deal with that.
It’s one of the topics in my complete guide to risk management for traders.
I understand trend following. It’s yet another thing to have your account go from a hundred thousand to 70, 000. Or from 10, 000 to 7, 000 or from 5, 000 to 4, 000 or from a million to 700, 000, when you think, when you start thinking in terms of the dollars, how much did I have? How much do I got now?
Whoa, something’s broken. No, it’s perfectly normal drawdown. I think normalizing the stats and looking at the percentages and comparing back to the systems constantly is really good practice. Otherwise, the dollar drawdowns will freak you out.
Getting details like this right is part of building a robust system, which is exactly what the Trader Success System helps you do.
More on Managing Drawdowns
- Drawdown in Trading: 4 Causes and 5 Ways to Reduce It
- Mental Drawdowns
- How to Set Achievable CAGR and Drawdown Targets
- How Do You Decide to Exit Your Trades in a Drawdown?
- How to Think About Drawdown When Combining Trading Systems
- What to Do When Your System Hits Its Maximum Drawdown
- 2 Methods to Launch New Trading Systems and Manage Initial Drawdown
