I’ve heard from more than a few traders over the past few days that they’re in a drawdown due to recent market manipulation events. (See long-time friend of the list Maoxian’s recent post on his Substack.)
Here are some suggestions for handling drawdowns (which are inevitable, despite what the folks who are good at talking about trading rather than actually trading might have you believe).
- Reduce size – psychologically difficult, but better in the long run
- Refresh your backtest up to current – the perspective a backtest provides is incredibly helpful
- Observe market action in real-time – more than you normally would
- Develop theories to improve your strategy – and add new columns to your backtest to capture aspects you’re missing
- Deploy a “version two” of your strategy for exactly this type of situation
Drawdowns are the market giving you clues for how to get better.
They also flush out the hobbyists.
Every trader who ever quit trading did so during a drawdown.
Handling drawdowns separates the pros from the pretenders.
It’s not if another drawdown comes, but when.
What can you do now to be better prepared for the next one?
More on this topic over the next few days.
-Dave
