Just to reiterate, this is not investment advice.  I’m only sharing what I’m doing personally, which doesn’t mean you should invest or trade like I do.  Please read the disclaimer below.

So what is a drawdown? A drawdown is the amount of money between the highest peak in your equity and the lowest low in your account. A trader with $100,000 in her account as of the end of March, $70,000 in her account as of the end of May, and up to $110,000 at the end of June has experienced a 25% drawdown.  The account made back what it lost (and then some), but at one point it was down as much as 25%, We want to understand that number because it gives us an idea of what to expect as far as losses go when we’re trading in real time.

Most people think of drawdowns as an extremely rare event, but the reality is they happen quite often even with a highly profitable trading system.  However, if you’re not prepared for a drawdown or don’t understand what to expect, then when you begin to experience one you might get thrown for a loop.

I’m in the middle of a large drawdown myself, and I’ve spent the last couple of months really working on my own psychology so that I can withstand trading through it.  These are just some of the things I’ve managed to keep in mind while trading in real time during this large drawdown:

  1. Backtest your system and highlight where and how often drawdowns were experienced: It’s really easy to just look at a rising equity curve and barely notice the little dips in them, but the reality is that those little dips can represent several months of a decrease in equity which for a new trader can come as an unpleasant surprise.  If you take the time to backtest your system on a trade by trade basis you can get an idea of what it’s like to experience these drawdowns that look like blips on a chart which will definitely help you handle them in real time when they do happen.

This is what the system I’m trading’s equity curve looks like, going back to 2012, with the current drawdown highlighted.

Equity Curve 2012-May 2015

The best trading systems all have drawdowns, it’s just an unavoidable part of trading.  The idea is to manage your risk so that you don’t inadvertently blow out your account because you didn’t understand or accept the true risk that comes with trading.

My current drawdown is not a sign that the system is broken, or anything close to that. I can get upset if I let myself get upset, and not like the losses, but if you backtest and thoroughly understand the system you are trading then you really shouldn’t be caught off guard.

  1. Be properly capitalized to handle a drawdown. If you backtest and understand your system, you should have a very good idea of what kind of drawdowns to expect and what the size of your account should be in order to live through them.  So if your system has had a $25,000 maximum drawdown in the past don’t expect to do well trading with a $10,000 account.  If you start trading just before a drawdown happens you’ll likely not last a week.

There is nothing worse than being wiped out, and then seeing the system recover from the drawdown and go on to make new equity highs. Traders who understand the nature of drawdowns and are properly capitalized go on to see the new profits, while those who aren’t get forced out at the lows – locking in the losses.

Drawdowns are real. They happen all the time and they will continue to happen. The best traders know this and are prepared and can handle it.  The amateurs are the ones who can’t.

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Just to reiterate, this is not investment advice.  I’m only sharing what I’m doing personally, which doesn’t mean you should invest or trade like I do.  Please read the disclaimer below.

So far the market is up slightly for the month of May.  According to Investor’s Business Daily, we went into a correction early in May but the market followed through with a new uptrend on May 14th.

One day later on May 15th, the markets (both the S&P and NASDAQ) closed flat from the prior day.  Some covered calls that I sold in the first week of May were assigned and most of my shares were called away.

The 3rd week of May should be interesting.  I’m hoping that the market pulls back slightly so that I can buy back the shares that got called away, hopefully at a lower price than what I sold them for.  But what actually happens for the rest of the month in the markets remain to be seen.

The markets have been in a choppy sideways range for some time now, increasing the tension.  Usually when a market goes sideways for a length of time, it builds up energy for it’s next major move (either up or down) so what happens next remains to be seen.

As of May 15, 2015, both of my retirement accounts are beating the S&P 500.

My goal for 2015 is to get both my retirement accounts to return 2014’s S&P 500’s return of 11.4% as well as get whatever the S&P 500’s return turns out to be for 2015.  I explain why I didn’t get those market returns here.

I plan to do this using the semi-aggressive ETFs SSO and QLD which are leveraged ETFs designed to return double the (SPY) and (QQQ)’s returns.  For more on my retirement plan strategy for 2015 read it here.

Check out the video below to see what I mean:

 

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Just to reiterate, this is not investment advice. I’m only sharing what I’m doing personally, which doesn’t mean you should invest or trade like I do. Please read the disclaimer below.

Lately I’ve been reading and focusing a lot on trader psychology, particularly since I’m in the middle of a nasty losing streak in my futures trading. They say that conquering your own psychology is critical in trading success and I am 100% determined to turn myself into a successful trader.

The losing streak I’m in the middle of right now is nothing out of the norm for the system I’m trading (using MarketClub). In fact, after spending weeks backtesting my system and compiling about 3 years worth of data, I found about 10 (yes, 10) losing streaks in the system I’m trading that have come up in the last 3.3 years.

Yet the system I’m trading, over the same time frame, has been very profitable.

Don’t get me wrong. This doesn’t mean that it’s easy to see losing trade after losing trade after losing trade right now in this moment. Far from it. I’m really, really looking forward to climbing out of this slump.

Which based on history could take a few months.

Yet I’m still going, and taking every single trade that the system generates. Even if they produce losses. Part of successful trading is following your rules and acting on every trade signal, and not letting negative emotions affect your trading.

Basically I’m training myself to take every trade and build my mental muscle. The best time to do this is through a losing streak. How you handle losses is more important than how you handle wins. Winning trades are easy, a trader’s character is built up through losses.

Now, if I hadn’t gone and backtested my system and actually took the time to understand it, I probably would have given up by now.

But clarity and education diffuses fear. Understanding what you’re doing and behaving like a professional is how a trader ultimately becomes successful.

The first loss was hard but now I’m used to it. And I’ve seen that losses have actually happened a lot in the past. Most of the time, in fact.

Here’s an example of over 3 years worth of results based on trading with MarketClub’s signals on Corn, Wheat, Soybeans, Crude Oil, Gold, US Dollar, Sugar, Cotton, and 10 Year Treasury Notes:

Screenshot 2015-05-14 11.33.53

The system has produced total profits of approximately $148,658.13 from 2012 through the first four months of 2015.

Yet the system has had some nasty drawdowns not unlike the one I’m currently experiencing, the largest drawdown being about $24,000 over a five month period from end of 2012 to early 2013.

Yikes, that’s a lot. If starting with a $100k account, that would be like experiencing a 24% loss.

The system has also had 8 other drawdowns greater than $10k over the same time period too.

Yet the system has also been very profitable despite these drawdowns.

The key really is money management and not risking too much of your account at one time. A $24,000 drawdown on $100,000 account is tough enough to swallow, but a $24,000 drawdown on maybe a $30,000 account would unrecoverable.

That’s why I’m keeping the faith and trading through this nasty drawdown.

Disclosure: Some of the links here are affiliate links.  Click here for details.

Check out the video below to see what I mean:

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SPY as of 4.30.15

Just to reiterate, this is not investment advice.  I’m only sharing what I’m doing personally, which doesn’t mean you should invest or trade like I do.  Please read the disclaimer below.

The market ended April only a little higher than it started, and the NASDAQ continues to battle the 5,000 level while the S&P 500 is still struggling around the 2,100 level.

Both markets made new recent highs in the 3rd week of April, but the last 4 trading days of the month saw slight downturn in both markets.

As of April 30, 2015, both of my retirement accounts are beating the S&P 500.

My goal for 2015 is to get both my retirement accounts to return 2014’s S&P 500’s return of 11.4% as well as get whatever the S&P 500’s return turns out to be for 2015.  I explain why I didn’t get those market returns here.

I plan to do this using the semi-aggressive ETFs SSO and QLD which are leveraged ETFs designed to return double the (SPY) and (QQQ)’s returns.  For more on my retirement plan strategy for 2015 read it here.

How have you been performing so far in 2015?  Are you outperforming or underperforming the general market?  Are there other strategies you’ve been using to take advantage of the market’s sideways action?  Leave a comment and let us know below.

Disclosure: Some of the links here are affiliate links.  Click here for details.

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Equity Curve

Just to reiterate, this is not investment advice.  I’m only sharing what I’m doing personally, which doesn’t mean you should invest or trade like I do.  Please read the disclaimer below.

Most great traders have more losing than winning trades and handling losses gracefully is something all committed traders need to learn how to handle if they are seriously into trading for the long haul.

It’s important for traders to fully understand how their trading system works. Knowing things like win/loss ratios, expectancy, and understanding drawdowns and losing streaks definitely helps traders be mentally prepared for what could come, as well as what is an appropriate account size to trade with so that your account can survive the worst drawdowns and ultimately get to the winning trades that your trusted system should produce.

I’ve been actively trading futures since February 1, 2015 after paper trading them for several months, and of course as soon as I start trading with real money the system almost immediately goes into a drawdown 🙁

But while I don’t like to see the ocean of red in my portfolio at the moment, I’ve come to understand that the drawdown that I’m experiencing is actually pretty normal.

And the system that I’m trading is actually very profitable. And that’s after having experienced about 10 major losing streaks (yes, 10) in the last 3 years.

Check out the video to understand exactly what I mean, and after you watch please let me know if you’ve had any similar experiences, or if you’ve ever been surprised by losing streaks in your own trading.

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