Posted by: joetradingplace | May 24, 2013

Dealing with DD period

Drawdowns are part of trading, there is no trader who doesn’t experience a DD in their trading career. The key to being a successful trader is coming up with a trading plan that enables you to withstand these periods of large losses. DD period is what separates real professional traders from overnight success traders… Some traders see DD periods as a bad thing, but I have a different opinion, I think they are good because the ykeep you on your toes…and thus you make sure that your risk management and MM is water tight. They keep you in check so that you don’t get arrogant thinking that the market is a walk in the park. They challenge you and you can notice your weakness…which you don’t usually notice when you are having a winning streak.

With back tested results, DD looks easy to deal with when looking at the equity curves, but in reality they are very difficult to manage psychologically. Most unsuccessful traders tend to double up on their size when they are in a DD period….but professional traders usually reduce their size until they get out of the DD period. The only time I increase my trading size is when my account is growing…not when I am in a DD.

A DD is not easy especially for inexperienced traders…you start to doubt your trading abilities…you start to change a few things on your trading strategy. And usually you are scared to take the next trade fearing to lose again…but remember trades are independent, so when you know that you have an edge, there is no fear in taking the 10th trade after 9 losing trades…and maybe that trade is the one to cover for most of your losses and get you out of trouble. It’s a tough psychological journey that can only be survived if you have a solid trading plan

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