No specific questions, just wanted to know your max DD.
Cheers
That's a good question - it's something I have not had to answer for myself thus far. This is because I am not yet at the stage where I need to really consider this.
At this point I am not a profitable trader. I am getting better and learning more - market understanding, psychology, risk/money management and trading strategy. However I have been working on it for 2 years full-time. (and that's after doing various patches of trading full-time over the past decade - so much for being a quick learner!).
I am still trying to develop and piece together my own trading strategy. I keep very detailed records of results. Whenever I can see that I am just losing and losing then I go back to the drawing board in terms of strategy design.
My average transaction cost is approx 6% per trade. So each time I put on a trade I lose about 0.06 units of risk right at the outset. So after 100 trades, I would expect to be down 6R if results were completely random. If I am down 15R or worse then I probably discard the strategy.
I have been able to do this for the past two years because I built up my own trading capital from other business ventures. It has been fine for me to live and work on trading and not earn any money, and I can continue to do that for a few more years yet. Though I would re-assess things if I am still not making money say by the end of 2015. I have been protecting my trading capital very carefully by only risking 30/trade to now risking £175. This is very small in relation to my available trading capital. As my trading gets better I can increase the unit size. In 2015 I am down about £2k in trading p/l - my overheads (including office rental) are very small so I am looking around £200-£250 per month in terms of work-related expenses.
In my latest strategy development I have done about 300 trades in the last 3 months and I am down about 13R (I trade from the 5M charts and nearly exclusively Cable, EURUSD, EURJPY, USDJPY and DAX). However I lost 15R in a stretch of two weeks when I was trading from a different location and was only able to trade the New York session during that time. So if I exclude this, then I am up around 2R from 250 trades - when I should be down around 15R if results were completely random. So on that basis I think I am onto something and I keep going.
My
academic/textbook answer on max DD would be that figure out your likely drawdown with your trading strategy during the testing phase. Then add on 50% of that as a buffer. If you then experience a drawdown in excess of the inflated figure then I would say you need to go back and adjust your strategy. (As I am writing this I realise there is probably a vast gap between theory and practice!).
Having said all that, I think its vitally important to keep really detailed records, screen shots of all trades - last week I took 50 trades - and I have 50 corresponding JPEG files - and to really never allow yourself to suddenly go bonkers and let yourself lose a good chunk of the trading capital in a single day.
I am sorry - this is a lot more than you asked for
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