Trading Tips: Stock Trading Curve Drawdown and Commitment

All stock trading and investing methods must deal with the inevitable drawdown from the most recent peak in one’s stock trading curve to a bottom before reversing and making a new high. Seasoned systems traders are well familiar with the drawdown phenomenon and the importance of drawdown as a percentage of annual average returns in evaluating a trading system. On the other hand, many “investors” that follow a “buy, hold and hope” approach to the markets for the long term, don’t think in terms of a drawdown when their portfolios drop in value by 10%, 20%…75%, as has happened in the past few years. But what they have experienced is an stock trading curve drawdown.

Systems traders know that if they are following a “good” system that gives them a winning edge, in order to “cash in” on what that system has to offer, they must have a strong commitment to following each and every trade recommendation, even if the system is currently experiencing a drawdown. They are emotionally and financially prepared to do so because they already know the historical maximum drawdown that the system has incurred before making new stock trading highs. They also know that the worst time to abandon a system is just after a drawdown and just before, it surges to new highs.

“Buy, hold, and hope” investors, on the other hand, are committed to holding no matter what. But that commitment is misplaced, because “buy, hold, and hope” is not a winning methodology. Commitment without a “good” system, or a “good” system without commitment, is both recipes for failure.

You need two things to win in stock trading. A “good” system or methodology and the commitment to follow it without fail especially through the inevitable drawdown periods.

Written by: Bill Poulos

If would like to learn more about stock trading
and you have a computer and a burning desire to seize
success, then you have what it takes to personally
unearth Bill’s Astonishing, step by step trading

< ---------- END OF ARTICLE ---------->

** Attn Ezine editors / Site owners **

Feel free to reprint this article in your investment
newsletter or web site in its entirety so long as you
leave all links in place, do not modify the content
and include our resource box as listed above.


{ 0 comments… add one now }