After developing my core knowledge about the market and going through the extensive process detailed through a good portion of this blog, I became much more conscious about the nature of draw down periods and I realized that they are THERE and that they are necessary for the trading of profitable systems. It actually comes down to a very simple concept, without the draw downs there simply wouldn’t be long term profitable systems because the market wouldn’t be able to discourage their trading through the cycle I detailed a few posts ago.
However one thing is to know that you will face a 250 day long 20% deep draw down period and another thing is to take your account ( or even emotionally worse, your managed accounts) through this psychological journey. The first time I faced the draw down monster I almost had a heart attack. I traded the God’s Gift ATR through a break-even/losing period of several months before a new equity high was reached. I was happy that I followed my plan and that I reached my profit target and I was even more happy about having defeated my own inner challenge of draw down survival. Understanding played an ESSENTIAL role here as I would have never done this without fully knowing what I was getting into. Definitely this is one of the main reasons why I consider understanding an absolute requirement for success in automated trading, at least for me it was.
Now after some time of achieving this ideal status where living from automated trading is a reality (and hopefully it will remain this way :o) !!) , I have a clear plan to deal with draw down periods and with my profit levels so that I can sustain the expected and worst-case scenarios of all the accounts I trade and manage without risking my living style. My plan has the following simple outline :
- Keep enough savings to live at least for 1 year without ANY income
- Always respect the worst case draw down scenario
- Always evaluate the extent and depth of draw down periods against the historical standards
- Keep living standards at 50% of expected profit level
- On every month, spend at most 50% of income, invest 25% (forex), invest 25% (other)
As a person who is fully dedicated to the field of automated trading I can tell you that – for me – the hardest part of trading Asirikuy systems is the psychological pressure that draw down periods bring, a pressure that is always existent but that I become better at handling as I develop a better understanding of my automated trading systems, their draw down periods and the foreign exchange market.
If you would like to know more about my journey in automated trading and how you too can design your own likely long term profitable automated trading strategies please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !