Sunday, May 20, 2012

Draw down...

First off, please pardon my absence this weekend - it was a hectic weekend. Also, Friday afternoon found me on-the-go once again with spotty internet access. I was surprised my tweet actually transmitted. Anyway, I'm back now and recharged to battle this coming week. Some may be losing (or completely lost?!?) faith in my systems and I'm fine with that, but don't lose faith in me. I am here for the long haul and have no intentions of hiding when things don't go my way. Yes, this draw down sucks hard but better times are on the horizon. They have to be. All traders need to keep the hope that their trading techniques or systems will perform as desired. Without hope, what do we have?

Tonight as I'm reflecting on the lackluster (to say the least) performance of my system lately, I'm trying to stay positive by reminding myself how it performed following the melt-down in August. For those that weren't here or haven't looked at the 2011 stats page, it performed brilliantly...almost flawlessly. I'm not really expecting to see that kind of performance again, but I'm hoping for the best. In the meantime I've relaxing with a cold Yuengling in one hand and bottle of room temperature Merlot on standby. :) Stay well and I'll see you back here tomorrow.


  1. Nicely put, J. I'd like to offer a general thought here, too, that has been on my mind as I've watched this thing unfold and watched the posts here.

    Having been at trading for well over 2 decades, I can say that these situations are to be expected to happen about once every year -- At least that's been my experience. These times identify those who are either not cut out for being a trader and/or those who cannot stomach the leverage they're using with a particular system. With leverage comes deep drawdowns. And there's really no way around that. J’s pushed his stats and he’s been here before, so this should not be a surprise.

    This is a time for all to reflect on whether or not they're ready for a system that can go from up massively to flat/down in a matter of weeks. Seriously, folks,. if you found yourself unable to accept this current situation, you need to rethink your leverage, for sure, as well as your expectations. Oscillator systems like this will hit w/near surgical precision for weeks at a time, and then, wham, they can get smacked in a strong trend mkt. It’s just part of the game. If you think stops are the answer, then you need to stop reading the crap that is published (95% of which is useless for trading) and figure out how this thing works (for you) -- and then leverage that – while being cognizant of the limitations.
    Good luck to all. Those who survive this will be better for it.

  2. JKH's thoughts are excellent. Here are a few of my own (some of which I've already shared):

    I trust J because I know that he's an honest and generous person. However, one must approach investing with caution and skepticism. I've developed many systems in the past that stopped working, so all systems must be viewed critically. Basically, the problem with investing is that there is no way to know that something that has worked in the past will continue to work (with the exception of trend-following, but, even there, there's the problem of periods when there's no trend). So, with full faith in J, I still maintain a healthy skepticism about his systems (btw, there is no doubt in my mind that so does J--that's one of the reasons I have faith in him).

    Now, even though systems may ultimately fail, they are guaranteed to fail if one cherry picks trades. And the worst time to turn off a system is during a period like we're going through now. The thing to do is to assign a test period that you're comfortable with and then trade the system during that period. After that, make an assessment. If you're cautious, avoid leverage, or, better yet, paper trade. But, whatever you do, don't decide that enough's enough and then, after a few good trades, jump back in.

    To summarize: J may have come up with some incredible systems, or he may not. There is no way to know that because of a few good, or bad, trades. Only an extended realtime test will tell the tale, and even then, we can never know with absolute certainty that the systems won't simply stop working. If you're uncomfortable with that, just trade golden crosses, or something similar, and accept lower returns in exchange for lower anxiety.

  3. Let me see if I can read the JT system's mind. The system is in unhealthy mode. We've had a big up day. So, it goes short.

    How did I do, J?

  4. Just read you email alert. I still have some work to do, it seems.

    1. Ha, nice try. I too was thinking the same thing, and was a little surprised to not see a flashing neon short signal.

  5. JKH/Algyros,
    Excellent posts. I have made plenty of mistakes but hopefully I learn from them each time. I write down each trade and why I made it, and what was my endgame. Doing this stopped me from making bonehead trades based on emotion or lack of a good plan. next when I found that entering the trade was a sound decision and scrutinized why I exited. I lot of times I deviated from from my plan because i was greedy, "knew better", or got plain scared. In these cases I either lost money or cut into a winning trade. I like to think that I am finally sticking with a plan. I agree that once you come up with a system you need to stay with it for X trades without fail. Also I have come to realize all systems will cease working at some point so some modifications need to be made. J has made modifications and no doubt will make more. His system still handily beats the overall market.

  6. Terrific post, jaws.

    I'd like to add one thing. There's an exceedingly fine line between making appropriate modifications to a system and curve-fitting. I'd say that the entire challenge of developing mechanical systems lies in being able to negotiate the difference between the two.