Hi all,

Not sure if my question is suitable to be posted here. If not, please kindly let me know.

I know many people using MDD as a proxy to set "quit point" or other metrics for strategy mgmt.

How about losing series?

If a strategy in live trading is making a new record of losing series, how would you interpret and react?

Thanks!

We can't know the sequence of wins and loses ahead of time, impossible. If strategy has a positive expectancy it's a valid edge. IMHO just scale back position size during this run of losers. You have some rules for dealing with a draw down I assume. After X amount down stop for the week. That sort of thing. Probabilities say streaks can happen. It's just part of this game we are in. Ride it out. Don't be like the masses......

Ron

But, do you think it a good idea to position size on unfavorable occasions other than dollar-based drawdown, such as scaling down after a long series of losses?

Hi Blash,

Thanks a lot for this! (finally someone give a favor on this thread)

Yes, I agree that money management is essential to ride out bad times.

But, do you think it a good idea to position size on unfavorable occasions other than dollar-based drawdown, such as scaling down after a long series of losses?

I'm wondering if such idea merely offers benefits on emotional parts, but won't sustain a system in the long-run.

I can provide some insight as I spent quite a lot of time researching LTTF (Long-term trend following) systems and one of the items I spent considerable time on was altering size based on both drawdowns and number of losing trades in a row.

The short version is that both methods reduce the size of the drawdown since size decreases as drawdowns increase, but they increase the duration of the drawdown since the winning trades are then invariably taken with smaller size. It seems to be a case of picking your poison.

I would be inclined to say the emotional part, and lumping in with this because they are all related your beliefs, is the hardest piece so anything that helps this out is a benefit, is good. I think we have to scale back during losers. Like 1 loss next trade regular size. Loss again, so now the third trade (the next one) smaller. I think we should (and I do) have ways to test these rules for scaling back many many times to learn what we can expect. For me its about becoming comfortable with the way the cookie crumbles. I find it extremely helpful to look at nature to understand and become acquainted with the process of things and the importance of patience in this trading game.

Ron