Trade Aptitude
Today’s Best S&P Futures Turning Points: Nothing tradeable today.
Friday’s results: This strategy is on hold.
The World Index: (+100/-100) soars from -14 to +57 with all major world markets Bullish.
Catalysts: Final MFG PMI @ 9:45. ISM MFG PMI, MFG Prices & Construction Spending @10:00
Quick Tip: When to Stop
All trading strategies have drawdowns (a protracted losing streak). The challenge is trading through it. You can’t stop thinking that it may “never come back” or churn for an extended period. Or you could get FOMO and think if you stop now it will roar back and you’ll miss the gain. Obviously, these thoughts are destructive. Don’t go there.
What you should do is have Stop-n-start rules to follow. These are rules that tell you when to stop trading the strategy and when, if ever, to start up again. This will take the emotion out of the process. Apply these rules to the performance of individual strategies, not your whole trading account.
Here’s an example of a rule set:
1. Graph the equity curve of the strategy for a 12-month trailing period.
2. Measure the drawdowns and select the longest you can tolerate. Note the market conditions at the time (trending or not, volatile or not).
3. The next time the equity drops there, stop trading. The next time the market conditions change to match the drawdown period, lower your position size and/or frequency.
4. Go back and measure the distance to a new equity high, or some percentage of the move back higher.
5. Start the strategy once it repairs to that level.
While nothing in this business is foolproof, this technique has some edge. You’ll miss the big down moves and the following up moves, but that’s breakeven and inefficient anyway. The big benefit comes when the strategy has stopped working and you weren’t still trading.
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Trade Fearlessly,
Mike Siewruk
P.S. Feel free to pass this along to your trading buddies. Share in the wealth!