So it seems there is much panic in the streets after the major market indexes have fallen around 8% over the last few days. And today they opened another 4% lower.
So what does that mean from a system perspective? One of my primary systems is a “dip buyer” which currently is loaded up and all in. Unfortunately it loaded up before the major drops in the market so it’s down about 7% as of this morning. Does that mean it’s broken? Nope – in testing drawdowns were as large as 20% which is about what I can realistically stand.
So in context, the 7% drawdown I’m experiencing now is less than half what I can expect for this system. It’s still not fun. I would prefer not to have drawdowns. But it’s part of the process. You can’t have the returns without the drawdowns (by the way this same system is still up ~6% year to date, so that makes it easier to handle this dip). So I continue to trade the system. I’m not making any changes to it because it’s well within the the tested parameters. If it falls below a 20% drawdown, then I will consider taking it offline and examining the logic.