what to do in a drawdown? should we stop trading? in some books and some online sources i have come to read that one must stop trading and have daily/weekly/monthly limits, example if i have lost 8% on Monday and Tue then i must stop trading for the rest of the week. Should we really stop trading for the remainder period as we never know when our next big profit is going to come?
Instead of putting a cap on your loss let’s discuss what went wrong in those trades that you took? What were the thought process behind taking the trade? such analysis will not only prevent u from losses but also give u more confidence while taking a trade.
Drawdown is part of our Business. Having drawdown limit is based on individual trading style. As I am Mechanical System Trader I limit Maximum risk per trade and I know the Maximum possible Drawdown for My system.
I faced the Drawdown maximum upto 20 % in my commodities day trading and it took me 5 days and guess what happened next I recovered those 20 % in 2 days. Suppose If I lost trust on my system after 20 % drawdown I can’t earn back those 20 % and I will get broke.
My suggestion is know the maximum possible drawdown for your trading strategy and control your risk per trade will give good results.
Note : Here I am talking about Mechanical trading and not about discretionary trading.
Yes I completely agree on what you say. Even I was thinking in the same lines that incase we stop we can’t recover our losses as we never know when our next profitable trade will be. Thanks for increasing my conviction to not stop in a drawdown phase.
when u r in a drag down, keep reducing your positions as soon as it moves in your favour increase it thts it.