Trading Tips No 5: Stock Trading Curve Drawdown and Commitment

 

Systems traders know that if they are following a "good" system that gives them a winning edge, in order to "cash in" on what that system has to offer, they must have a strong commitment to following each and every trade recommendation, even if the system is currently experiencing a drawdown. They are emotionally and financially prepared to do so because they already know the historical maximum drawdown that the system has incurred before making new stock trading highs. They also know that the worst time to abandon a system is just after a drawdown and just before, it surges to new highs.

"Buy, hold, and hope" investors, on the other hand, are committed to holding no matter what. But that commitment is misplaced, because "buy, hold, and hope" is not a winning methodology. Commitment without a "good" system, or a "good" system without commitment, is both recipes for failure.

 



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