Money Management: Drawdown

The Blog Entry that Accompanies this Vlog Entry is at: http://investorandtrader.blogspot.com/2008/11/money-management-drawdown_10.html

My Daily Blog is at: http://investorandtrader.blogspot.com/

My channel at BlogTV is: http://www.blogtv.com/People/Airelon

Why keep track of your drawdown? After all, we just want to trade right? You just want to focus in on the reward, whether it be from the Forex, Commodity Futures, or Stock Markets, right?

Drawdown assists you in understanding the worth of a system or method as well. If the person offering the system refuses to talk about the drawdown numbers of that system? That's a good indication it's a scam and highly overrated. If the person offers you a system or methodology and talks about drawdown - this lets you know that the system has verifiable merit that you can test.

But what does drawdown tell you about your system, and how you should adjust the rest of your money management strategy?

We discuss that in the following vlog entry ...

NOTE: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research and risk tolerance. Included Music is by Paul Young. A personal friend and is not a part of any music license, recording label, etc

Category:

Education

Tags:

• howto
• trading
• investing
• stockmarket
• forex
• commodityfutures
• options
• Airelon
• moneymanagement
• drawdown
• unrealizedloss
• loss
• dividend
• daytrading
• tradingforaliving
• swingtrading
• positiontrading

[galendracos]

I wonder how many consecutive drawdowns you should take before you know it's "the mule" or it's your bad analysis? I suppose that's why you keep track of them. Dumb question time, do you notice from your own tracking that you take fewer consecutive drawdowns now that your more experienced or about the same as when you started? Do you still take it on the chin sometimes? Does it still work on your emotions after 13 years of active trading?

[AirelonTrading]

Oh heck yeah man. Of course ... now taking it on the chin? Is like a 2% loss of my accounts. About 3 weeks ago, Silver ROCKED me. I lost almost 2% of my account. I know other hedge fund managers who also got rocked hard by Copper three weeks ago.

But when I first started out ... getting rocked meant a 60% loss to my account.

I talk about this later on in the series too, about having a "ruin" or "Drawdown kill switch"

[Foxtrot357]

I'm sorry to say, but being able to stop time alltogether and then press play again would b the best super power. If some 1 was shooting at u all u would have to do is stop time and then move out of the way or pick the frozen in time guy up and bring him to the desert then press play. The only catch is that u couldn't age while time was stopped.

[AirelonTrading]

That's a catch? Sounds like a plus to me!

Hmmm ... in that case, I would have to have the Bart Allen super-speed, in which case, I could travel the speed of light. :)

[pierneus]

Very interesting video! It's crucial to keep track of your own drawdowns (both). Once you have collected enough data, you can make your own statistics and on the base of that establishing the optimal level of stop loss, which varies according to your trading style. I can personally accept a drawdown of 10% out of my equity, considering the fact that I use a risk/reward ratio of 1:15 (forex)

[LibertyFX]

Super speed is excellent but up there as well is Spiderman's danger sense.

BTW Peter Parker would never have a draw down with his power. Sadly like many he was never exposed to the finical market.

[AirelonTrading]

So, could you change back into a human being at will? Because otherwise you'd have to hook up with other monkeys. Ugh.

:)

[sysexit]

I think the best is being: an invisible monkey that:

1) couldn't become sick/die

2) didn't have to eat

3) had infinite memory and human-like perception

So, immortal and polyscient, but also an invisible (squirrel) monkey.

[AirelonTrading]

And part of the reason I was laughing is I was kidding with my wife: You would never be late again. I'd just go into superspeed mode, and dress you and move you around the house so she'd never make me late again! I threatened that I'd put her makeup on her at superspeed if she ran late.

LOL.

Man guys can be goofy. :)

[rog944]

Interesting. It looks like someone already took my idea.

True, you wouln't notice any time travel effects at that speed. But like you said, it would still be a very practical super power to have. As long as you staid healthy, you'd never need to own a car again!