Trader A finishes the year up 35% after having a max drawdown of 50%. Trader B finishes the year up 25% after having a max drawdown of 5%. I think Trader B is the better trader because conservation of capital is the most important skill/talent of any trader/investor. Loss and decay is all around in the market and the universe. Its called entropy. You drop a TV from 100 feet high, it doesn't turn into Green-Blue Chimpanzee with Buffulo Wings and fly away. No it gets smashed into 1000 pieces. You are not a hero after coming back from a huge loss, you're just a lucky. Reward is always related to risk, and by risking more to come back you risk total ruin.
You can't tell who's the better trader based upon just one year of data. Maybe one was luckier than the other. The best traders are the ones who get consistent results, IMO. They hit alot of singles, rarely strike out, and once in a while hit one out of the park. They are the ones that will remain in the business for years to come.
Drawdown is la-la-land. What it means is that your positions or trading went into loss and that you just gritted your teeth. This is not trading; its paralysis. If you survive, you call it a drawdown; if you don't, you call it a blowout.
No comparison...B by a mile. If A and B go into a Hedge Fund , B gets the job easily. A prop shop wouldnt even entertain the though of hiring A.
Trader B will be more consistantly profitable than trader A. Chances are Trader A will blow up his capital anyway given enough time.
Depends, whether or not the trader learned from his mistakes. I had a 50%bdrawdown overnight, once, it taught me a lot about risk! It was a very important learning experience for me, and ultimately made me a better trader. I am a very consistent, and profitable trader. I still say that your sample size is too small, and that you need to look at his or her track record over a longer time period to make a good decision. Trader A, could have had a story like LXK, and DKS hit his portfolio and poof there is his drawdown, yet he traded out of it and came back. That is the mark of a good trader. Trader B, could have kept averaging into a stock like GM earlier this year, and caught a lucky pop up to $31 on an overnight squeeze and bailed out of the position, and remained flat the rest of the year. The don't be sore, buy some more mentality is more likely to put you out of the game. IMO, trader A will be around longer than trader B. I hope noone here ever goes through a 50% drawdown! Good trading! Mike
If trader A made up his losses not by luck but by awareness, confidence and skills, I think he might be a better trader than B; the difficulties of coming off such a big drawdown are clear to me. He may go a long way. And even if it was all down to luck I still appreciate his tenacity, and the fact that those huge losses did not affect his thinking and he has retained capability of entering future successful trades sure is a clear sign of strength. Still, as someone said before me 1yr is not enough to judge consistency. P
Trader A is a crazy gunslinger. Tader B is using proper risk managment under a 50% downdown i would have not held a cood head but that is me..
Trader A sounds like an investor during the end of the tech bubble. Trader B sounds like a hedge fund during the same time. You know how that story ends. nitro