Very interesting. As the article correctly says, when a trade is opened, it's very likely to suffer a drawdown. From my statistical research 70% of opened trades have a drawdown, and just 30% moves as expected and returns a positive gain.

Great information and insight!

Very bright...

Has anyone thought of putting together a conference weekend, think tank..

Excellent- thx

Andrea in your study what demographics did you utilize? I would like to see the results of the same study using the uneducated and educated investors in separate studies. I'm positive that the results would be totally different and more positive for the educated group of investors.

More - I forgot that my previous comment did not mention my thoughts on the article. Why do we usually measure the market moves from the tops and not the bottoms. We need to look at both positions to make an accurate judgement of what is actually occurring not just one perspective that concurs with the spin we want to portray.

I agree William and also for investment point of view i feel both extremes and specially bottom needs to be researched

@William, I did a study on my trades placed as a discretionary trader, from the start of my trading activity and, of course, I was an inexperienced one. Anyway I mean blue chip stocks, overnight trades (not scalping or intraday positions) and approximately 500 trades over 2 years of trading. But the more interesting thing is that my mentor (a professional trader) told me the same numbers, 30% of trades are profitable as soon as you have those positions on market, whereas 70% are not profitable in the beginning (but they may be later). My mentor has 18 years of experience and is annual returns are always positives.

The problem is: timing. Perfect timing does not exist, and if you are long and buy a support level, very often that level is broken for just few points to be back and grow after few days. If you have tight stops, it likely they are hit.

So, drawdowns are always present but that does not mean you lose money, because after some time they may become profitable again.

Andrea I saw your point of view back after the 2002 market crash that took 50% of my investments. The trouble was I had no control over my investments as they were invested with a major investment firm. I spent around $30k to learn how to invest in the market after that bad experience. Every course I took told me the same thing only 30% of trades are winners if you don't have solid experience and understand the market. The courses told us that experience and understanding increased the odds to 3 wins to 1 loss or a complete reversal of the inexperienced investors results. Timing is the most important aspect of a position. I learned that the only way to get the timing right is by using multiple indicators on the stock's chart - and not using supply and demand levels. By the way I'm a swing trader! I'm in when the price confirms and upward movement and out when it confirms a downward movement.

Andrea, I wouldn't agree. While it may be true that 30% of your trades become profitable right away and that 70% of your trades suffer at least some draw down, those statistics are based on you only, specific to your individualized risk parameters, techniques for entry and exit (your own methodology). Every trader is different and at the end of the day, a trader trades their belief system. So you really can't form your own statistics (by logging your entry, exit, S/L, and T/P, [along with your reason for entry and reason for exit) and then assume that those stats apply to everyone else. You can't blanket apply your own statistics and assume that every other trader fits into those stats.

@Richard I agree with you, it was my statistical research, but I didn't state that 70% of other trades will be a loss, I just said that 70% goes against your expectation for a while. Some of them will be stopped, other will turn back in profits.

I'd like to know how your statistics is in general, how much do your trades suffer drawdown from the beginning?

i agree with you

Portfolio drawdowns are relative, relative to the trading strategy used. But one thing is sure, a lot of trades will see some drawdown, more that people think. I used one of my programs to illustrate the point doing a simple test on two stocks I have tested before; just wanted the numbers.

That program trades a lot over a 20-year test period. Trade details are printed on the charts by the program. It has the particularity of having random-like entries and exits.

To see how many trades suffered drawdowns, it was sufficient to order all the trades by MAE (maximum adverse excursion). Here are the numbers, well maybe best to give the number of trades that did not suffer from a drawdown. LMT on 3,261 trades had 20 trades that did not go in the red; while LOW with 4,206 trades say only one trade not going in the red, or showing any loss. In total less than 0.3%. All other trades saw some red (99.7%).

...more

A trade not to go in the red needed its buy to be the low of the day at the open, and the price never going any lower thereafter. So, the probability of that is low, hence the low numbers.

That strategy was last modified Nov. 29th making the presented charts a 5-month walk forward out of sample test.

The control settings are deem slightly aggressive. Of all the trades generated (7,467), all were at a profit from either having been sold or not. For this trading strategy, this is not unusual, it will do this each time it is near making historical highs. The reason why this is so is simple: no shares are sold unless there is a profit.

.

http://alphapowertrading.com/images/divers/LOW_May03_2016_DEVX8_Nov29_ver.png

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http://alphapowertrading.com/images/divers/LMT_May03_2016_DEVX8_Nov29_ver.png

So, drawdowns are indeed relative. And you can't escape them.

Lot of useful insights here. In my experience drawdowns are inevitable, and as Andrea Nalon mentions, number of losing trades can be reduced. We had started with 40 p.cent winners on one system and have improvised to about 43 p.cent. But there are many other dynamics. The newer version trades lesser and uses multi time frame analysis to take signals. So overall drawdown percentages have reduced with trading costs and slippages going down.

On the other hand, we are running another system with winning ratio of approx 38 p.cent. But the reward/risk ratio is > 3:1

And there are traders I have seen who want higher winning ratios. Generally these guys land up using a discretionary systematic approach rather than fully mechanical.

@Vivek Gadodia, great considerations Vivek, the winrate and reward/risk ratio are the only drivers to succeed with trading (algorithmic or discretionary).

I've just written a short R script in order to run a montecarlo simulation of trades, and if your winrate is only 30% but your reward/risk ratio is 3:1 (or better) that strategy will always create an upward equity curve and of course a positive total return in the long run.

I've just published a post about reward/risk ratio tested with monte carlo simulations. For those who are interested please look at: https://www.linkedin.com/pulse/why-rewardrisk-ratio-31-enough-succeed-trade-stocks-futures-nalon