Drawdowns suck and they are inevitable




The vast majority of a trader’s lifetime will be spent in a drawdown from peak equity.  The key is to not get greedy, not get fearful and keep your chips together for the next trading day.  You can’t do this if you don’t trust your system. TRUST IT. 

I’m in a two-month drawdown.  I peaked a little over $17,000 in August.  I went on vacation.  Missed an opportunity for a $20,000 peak. Came back.  Was a little restless and wanted to “make up for lost time.”  Now I’m back down to $11,000.  This period sucks. No matter what I try, nothing seems to work. Slowly, my account bleeds.

Check out the drop immediately following the peak:


I was feeling strong, smart and in a hurry.  I pushed the risk a little too hard, which in my case it often means, adding contracts and tightening my stop orders, the double whammy that increases the odds of losses exponentially.

Part of the reason I fall into this type of mistake is that when volatility rises, it is indeed possible to make huge gains with very low money at risk.  But this typically doesn’t last and the skill of a great trader is to be able to sense when greed is creeping in and take a step back, evaluate his ability to stick to the original trading plan, pause if necessary and protect your profits.  THERE IS ALWAYS ANOTHER TRADE.

Drawdowns tend to make you question your system.  If doubt creeps in, then the world starts to suck…  Nothing seems right.  Stick to your plan.  You can tweak small things every once in a while, but don’t rebuild the whole plan, especially if you have done your homework on it and have a spent a couple of years refining it already.  STICK TO THE PLAN.

The positive of the current drawdown is that after the initial greed, I was able to stabilize and keep my chips together slowly wait for better trading opportunity.  Eventually, they will come.

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