It is funny. Just when things seem to be moving in the right direction, along comes a WHUMP - that is the sound of the market smacking me around after a period of good days. That sort of thing seems to happen a lot...
An equity crash like this is why I always caution friends and family when they say "I want some of that action!" Usually all they see is the 50% per year annual returns I've had the past 3 years. What they don't see are the drawdowns and equity whips. And emotionally, many people would justifiably find these type of equity crashes hard to handle. I totally understand why.
Anyhow, I'm back in negative territory for the contest. But, like always, I'll stick with the plan, since the performance, while bad at -15%, is still within expectations.
Comments are welcome!
What? You mean a 50% return per year doesn't equate to a nice steady 1% per week??? lol
ReplyDeleteAnything steady would be nice! I guess that is what makes it so tough...
ReplyDeleteThe kind of drawdowns that traders experienced is what make trading different from a buy-and-hold strategy that most people are comfortable with. Whenever I spoke to non-traders, their reactions were, just hold on to your trades until they made money.
ReplyDeleteGood point! A lot of investors don't understand "drawdowns." Traders must understand it!
ReplyDeleteHello Kevin,
ReplyDeletefirst of all congratulations on the idea of writing this blog. It'll be interesting to see how the contest goes.
You mentioned in this post that for the past three years you had around 50% gains. Could you share the maximum % drawdown experienced during this period, or the Compounded Return/MaxDD ratio you got from backtesting the systems you currently trade.
I'm basically a trend follower and if I get a (Compounded Return/MaxDD) ratio of 1 it's a very good result.
thanks
Thanks for your comment. I had around 49% drawdown during the Flash Crash of 2009. Thankfully, in the 2 months before that, I made over 20%, and in the four months after it, I made about 60%, so the impact was not long term.
ReplyDeleteI agree that a 1 ratio for return/dd (many refer to it as Calmar ratio) for a 3 to 5 year period is pretty good.
Good luck!