seems like a crazy stop loss to use

by Steve
(Raymond, NH, USA)

Just looking at CovertFX myfxbook page, it shows several Gold trades that went minus nearly 900 pips. That seems like a crazy stop loss to use. Some of the non-metal trades went to minus 190 pips. 46% drawdown. Scary

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Sep 06, 2016
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I am changing my mind about large drawdowns
by: Brainyforex

Hi Steve. Yes, earlier I would have agreed with you but I am now starting to change my mind about large drawdowns for automated trading systems (and manually traded systems too).

Large drawdowns seem like a bad idea and seem to go against common sense of a winning trading system? However, if the system can recover quickly from a large drawdown and even add handsome profits on top of that recovery quickly then the traditional "common sense" approach may need to be re-thought?

For example I have noticed with Jared's prior EA called KeltnerPRO that this system can have large drawdowns occasionally but it's profits in some months have reached 246%, 100%, 90%, 68%. These figures are what the system has achieved in just one month of trading. When I see KeltnerPRO go into a 20% to 40% drawdown in one month I too think that its CRAZY but then next month it bounces back with a greater profit, then I think I have to be more open minded about the large drawdown.

Most people whom have hard earned money at risk and see their account balance lose nearly 40% in just one month would panic and stop the robot from trading into the future for FEAR of losing more. That's just human nature? But if you consider the overall performance of nearly three years of (real money account) for KeltnerPRO you can see that the system has generated a lot of profits.

I don't think large drawdown systems are for everyone because of the potential emotional stress when the system experiences a large drawdown. For example KeltnerPRO went through four losing months in a row before bouncing back. However, there are some traders out there that can handle these drawdowns and are happy with the risk / reward trade-off.

What we need to do now is monitor CovertFX and see what type of risk / reward relationship it develops. When I put in on test the other day it went into a 17% drawdown but is already on the road to recovery. It will be interesting to watch and see what happens next?

Regards
Fritz

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