Drawdowns are inevitable in this game -- if you can't take the heat...get out of the kitchen. Look at the bigger picture of things...don't necessarily get bent out of shape on losing days.
I used to trade many markets in the late 80's + 90's. I occasionally used leverage. Didn't have instant real time charts and hand plotted information. I guessed a lot. I eventually discovered that: 1) the U.S. equity markets have an advantage or edge in that the underlying long term trend reflects solid stable policy, product innovation and development, persistence of credit cycle through monetary easing, incentives towards rewarding shareholders, etc. Other markets such as commodities and currencies don't "produce" anything and aren't supported by these "underlying" factors 2) Longer term positions taken in the U.S. equity markets ( and sometime "cash" positions ) taken at strategic times can produce as much profit and compounding as an aggregate of short term trades with a lesser and commensurate amount of mental resources expended. 3) The combination of a strategic, empirically tested, quantitative ( non subjective, non technical / chart based ), strategy and longer holding periods alleviated much of the cognitive frustrations that I had when "trading" and built confidence. 3) the evolution of Exchange traded fund products has streamlined the asset class selection process ( one doesn't even need to buy and sell individual securities anymore, necessarily) and made it easy for the average investor to acess. The underlying portfolio structure of these products can represent some of the highest decile alpha producing universes within academic testing. 4) the tax deferral of a Roth IRA provides advantage in further compounding in one's asset growth. 5) one may want to learn another skill and occupation, creative endeavour, etc. and a transition to longer term investing can make this possible ( yet it does require time and a different learning curve than "trading" ). Food for thought
After I got consistent, I found losing weeks to be more informative than have a bad week, like I would research the crap out of it to discover if it was just normal losing or reasons that other weeks. Like FOMC for me means two days before it comes out to trade less contracts and less time of USA day session, but that gives me more time to trade premarket Currencies, Crude Oil and Gold. I just learned that losses meant something more than losing.
Prove to yourself its not just a bad week and not something you can expect on a regular basis, if you can do so ignore it and carry on not an issue.
Assuming your system has a positive expectancy and you truly believe in the probability distribution it implies, you should expect losing trades as they comprise the probability distribution you are trading. In this case, cheer up and embrace those losers because they foretell winning trades coming up soon!
I am sorry for not having read all of the replies, my opinion is this, market behaviour is random as it's based on events that haven't taken place. Because of that fact you can have a run of 'bad luck' - multiple consecutive losses. That's to be expected. As long as you haven't broken your rules your historically established probability ought to prevail. Keep at it. May I ask what is your system's probability and what is the risk/reward ratio?
My interpretation of above: mkt has evolved to an environment (personality) you're unfamiliar with - and it rocked your world Random suggestions in no certain order: Detachment - obvious you yet embraced it We can do every conceivable thing wrong - and the trade profits We can do every conceivable thing perfectly - and the trade breaks down and loses Detach yer ass from the results ============================= Adapt or die Do the work...,determine why the current environment kicking your ass / you approach not adapting to it correctly Modify it ======================== Humility Mkt showed you for a fool this past week - get some..., get over yourself You could also be scared your approach / methodology petering out - again mkt has evolved past where your current approach / methodology capabilities are sufficient Determine why and adapt ====================== Likely it some combination of all above Food for thought RN
I think your system is not complete yet --> back to the drawing board!... This happens to many who only backtest with historical data and/or just test with paper trading, but neglect to throughly test the system with simulated market data, ie. doing 1000s of forwardtests using GBM data. You need to find out the reason and adapt your system to that new/extra situation, because it surely can repeat... I guess you need to tweak your money management rules/strategies... FYI: you can also use options as a relatively cheap protective measure (depends on the strike you choose)... Unfortunately you have not mentioned what markets/instruments your system trades nor the timeframe, ie. average holding period, nor whether leverage/margin was used, etc. But much depend on these things... I suspect you did not use any diversification, otherwise it wouldn't have come that bad... To make a long story short: you should always be prepared for the worst, and have an emergency plan... Then you won't be surprised... Good luck!
2 years of backtested data simply isn't enough. 2014 and 2015 were fairly orderly markets, you need to include 2013 as a low vol period, 2009 as a fiercely bullish period and 2008 as a volatile down market. It's quite easy to curve fit something for the last 2 years but altogether much harder to get consistent returns with a 10 year backtest. What you could do is, freeze your methodology and do other things, come back to it in 6 months to a year and see how it would have performed. I don't think anyone can just move on from a record breaking drawdown. For myself, in this scenario I would go much more conservative taking higher profit factor trades only.