Hello Traders
Today i and a few fellow traders were discussing a new strategic way of using performance to gauge your drawdown appetite as another way of trading. It sounded like a good idea but still we haven't delved into it much so we hope we can have a discussion here with other traders to see what others think of it . Here it goes .
We thought of making 100% return as the epitome of any trading account , more like the perfect gain for any trader , being able to double your account within a short time . Then the issue of draw down came in because for an aggressive way of trading with a target of making 100% , draw down is likely to increase . That is when one of us came with the idea that for every return you make you are entitled to only have a maximum draw down half of the performance . So for example , if you are up 10% on your account , you should only have a maximum of 5% drawdown or 6% maximum , anything more than that indicates a problem with your system and an indicator that you are likely to lose your account sooner or later .
Another example , if you have made 40% return , you can scale up your draw down appetite to 20-25% maximum . If 80% drawdown , a draw down of 40%-45% and so on . Thus when reaching your 100% return goal , a draw down maximum of 60% will be good and will show your trading prowess .
Do you think this is a good strategy ? Do you think the logic is any good ? Do you think it is a finer way of determining a trader's strategy and trading ability?
Let's discuss and tell us what you think .
Cheers
Today i and a few fellow traders were discussing a new strategic way of using performance to gauge your drawdown appetite as another way of trading. It sounded like a good idea but still we haven't delved into it much so we hope we can have a discussion here with other traders to see what others think of it . Here it goes .
We thought of making 100% return as the epitome of any trading account , more like the perfect gain for any trader , being able to double your account within a short time . Then the issue of draw down came in because for an aggressive way of trading with a target of making 100% , draw down is likely to increase . That is when one of us came with the idea that for every return you make you are entitled to only have a maximum draw down half of the performance . So for example , if you are up 10% on your account , you should only have a maximum of 5% drawdown or 6% maximum , anything more than that indicates a problem with your system and an indicator that you are likely to lose your account sooner or later .
Another example , if you have made 40% return , you can scale up your draw down appetite to 20-25% maximum . If 80% drawdown , a draw down of 40%-45% and so on . Thus when reaching your 100% return goal , a draw down maximum of 60% will be good and will show your trading prowess .
Do you think this is a good strategy ? Do you think the logic is any good ? Do you think it is a finer way of determining a trader's strategy and trading ability?
Let's discuss and tell us what you think .
Cheers
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