Trade Aptitude

Results of Tuesday’s Best S&P Turning Points: The suggested buy @ 3846.50 stopped out. 

Today’s Best S&P Turning Points (consider wider stops and less size in fast moving markets): 

Buy 3811.00 stop 3806.75. Short 3902.25 stop 3908.00.   

The World Sentiment Index: (+100/-100) EASES from +67 to +50 with most major world markets bullish. Historically the close was higher than the open 46% of the time. 

Catalysts: ISM MFG Index & JOLTS @ 10:00. FOMC Minutes @ 14:00. 

Quick Tip: Managing Drawdowns

All trading strategies have drawdowns (a protracted losing streak). The challenge is trading through them. You can’t stop thinking that it may “never come back” or churn for an extended period.

Then you 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. 

Last month our intraday trend strategy for oil futures went into a drawdown. Until the drawdown ends we won’t be trading it live but we will be documenting every result as if we were. That is the first part of managing a drawdown… continued monitoring. 

Next you should have drawdown management 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 that works well in trading that you can apply to drawdown management too: 

1. Track the equity curve of the strategy (this can also be generated from a back-test). 

2. Draw a trendline connecting the ascending low points and extend it to the future.

3. Stop trading when the equity drops below the trendline. 

4. Draw a trendline connecting the descending high points and extend it to the future. 

5. Start the strategy when the equity curve crosses above the trendline. 

While nothing in this business is foolproof, this technique has some edge. You’ll miss some 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. 

Tired of trading alone? Join our trading team. We use evidence-based rules across multiple strategies, and constantly research and test new ideas. Click here for a no-risk 30-day offer. You can make 2023 your best trading year ever! 

Trade Fearlessly,

Mike Siewruk 

P.S. Feel free to share this blog with all your trading buddies.