Worst Drawdown?

Hi guys I am seeking your opinions on how to plan for worst scenario in regards to losses.

Say I backtested my system and the worst drawdown during that period was -$1000 (per quarter). Assuming my testing to be correct and results valid, what kind of drawdown should I plan for when actually live trading?

p.s. I dont consider events such as the flash crash as valid seeing how they are too infrequent. I am looking for reasonable protection not protection against every possible thing.

Thanks in advance.

Not enough data to come to a conclusion.
Is the system manual or automated? (its irrelevant, just curious)

Do you know....within any time frame.
1. Overall trade success %
2. Average drawdown per trade

If you know those two items you can plan.
If you don't.....you should probably do more testing until you do.


Did you know you can make millions even if your success % is 50%.
If your stop is less than your profit target and trade qtys are equal you'll always make money.

20% loss rate. we'll say that the loss is set at 100$ and win is 50$ average. assume these stats for any timeframe.

Hi feng456,
First, I apologize for not providing the source of the following. I don't necessarily use these exact guidelines, but find them as a note worthy set of information when I have an open position (because the following has been published to many thousands of traders).

The following reflects inter-day strategies. (I'm an intra-day equity index futures trader.)

The professional futures money manager's industry reward : risk average is around 3.2 : 1.

Here's a popular INTER-DAY gap play methodology. Most traders that play the gap will lose money ... gaps up under 40 pts.... with a 1.5 : 1 reward : risk ratio.

Gaps up to 30 pts... stops = 45 points from entry (that's about 1.382% of the Stretch calculation) from the entry, not from the previous close. Not all gaps fill on the same day, but most do. Set the parameters and leave it alone. If targeting a 1/2 half fill it is ok to trail the stop loss order(s). Gaps that start to fill tend to fill entirely. Gaps can be used to identify: 1.) Markets in a sideways consolidation, 2.) Start of a new price trend, 3.) Continuation of a dynamic price move, 4.) Termination of a trend.... Approach the pre-opening (equity index futures B session) call comparison to previous range.

Pivot Point Check list:.....Using pivot points as entry points:
The author suggests using a 20 point stop to from that level to start. Look for a scalper confirmation within 15 minutes. First target is the next pivot point level, .... 1st half off a pivot, move the stop to breakeven (you can also use a 21 period EMA as a trailing.). Generally take the 1st test of each pivot during choppy days like during Summer days.... fade against pivot points.

Note: Again, I include these strategies into my trading periphery, and not as hard rules.

Originally posted by grednfer
Did you know you can make millions even if your success % is 50%.
If your stop is less than your profit target and trade qtys are equal you'll always make money.

For years I've been warning fellow traders about the "90% win rate" systems that you see touted about the net. You can have a 90% win rate system with the flip of a coin determining your trade direction and a target of 0.5 ES points and a stop of 20 points. You'll lose money trading it but you'll still have a 90% win rate.

If you have a 20% failure rate, that means generally 8 of 10 trades are profitable, that is very good!

8 of 10 X $50 = $400.
2 of 10 X $100= $200.

Over time, I would not be as concerned with the planned losses as I would be be in maintaining the 20% failure rate. If your failure rate increases to
30% your profit/loss ratio is 350/300
40% is 300/400 and you are losing money.

That is why I really don't like heavy risk/light reward (-100,+50) algos....
Even if your trade % is high you can still lose money over time. HFT algos are based on that model but I never liked it. For example, If you have 4 losses in a row, you then have to have 8 good ones in a row, just to break even....the odds begin to stack up against you.

But if you can maintain the 20% failure rate your biggest problem is going to be how you are going to spend all that money!

I'm with you DT, I'll take profit over win rate any day!

Anything over 50% success with a ratio of risking 1 to make 2 is what I like.

Originally posted by day trading
For years I've been warning fellow traders about the "90% win rate" systems that you see touted about the net. You can have a 90% win rate system with the flip of a coin determining your trade direction and a target of 0.5 ES points and a stop of 20 points. You'll lose money trading it but you'll still have a 90% win rate.

thanks guys for all your replies. i did a calculation (with some help from stats people) to see what the probability of losing x times in y trades per a certain time period was and decided what was acceptable for a drawdown. i then scaled my position sizes accordingly and also gave me a template of what stats i should expect in the future to monitor the health of my system.