I'm not trading live just yet, I'm learning, reading, developing my system etc. My system shows somewhat nice profits, and also naturally some periods of drawdown. I've been thinking that when I "go live" that if my system will produce drawdown that I wont be able to stick to it. This is probably a classic question, and I know the answer is that if I believe that my system is intact that I sould just "bite the cushion" and trade the system that it will be profitable, but it's hard isnt it?
bracket your trades if u have profits targets...let everythin' take care of itself and assumin' it has shown potentially profitable results dont preoccupy uself with twitchin' it and intervenin'...at least if/'till it works as expected.
Anybody who develops and trades systems, knows this unfortunate fact - you WILL have a drawdown immediately when you first trade a new system. Or maybe, it just seems that way whenever I do it! Seriously, be ready for a DD at any time. Trade small. Trade your system EXACTLY like your rules say (at least at first). Never give up. JMHO but it works for me!
I remember trading on a smaller scale to test a new system in real time, real securities, with real money. I do not expect to make money with small scale trading. Small scale trading familarizes me with the behavior of the system. I learn by backtesting a system that making significant profit often includes draw downs. Risk can not be 100 percent known.
Yes, money management is very important indeed. The tricky part is to know when the drawdowns are normal and when the system has stopped working. Maybe stop trading for a while when hitting a series of losses or something like that would take care of it?
You're right, it is hard, and drawdowns will happen. But if you have a system that you are confident in, initially, trade small enough (maybe one-lot minis, in any case WAY smaller than whatever you think you "should") so that you can afford to stick to it regardless, without financial pressure to intervene. And trade it EXACTLY according to your rules. That will let you set a cutoff point that will let you continue safely until you clearly know that it is just not working, even if it draws you down to that point and blows out completely. If it draws down to there, then you need to tweak it and try the same thing again, but you will still have the capital to do so. Then, if (when) it IS working in real-time, increase size gradually as your account grows enough that you never feel that pressure. If your system is robust, the trades will still be there next week, next month & next year as your confidence and knowledge of your system grows. If I have learned one single most important thing in more than a few years of trading, it is that when I am trading appropriate size (e.g. smaller), I trade MUCH better and sleep better too. Good trading! Jessie