AVOIDING DRAWDOWN - In Trading & Investing
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- เผยแพร่เมื่อ 22 พ.ย. 2021
- Many traders and investors alike focus on gains, and the importance of annual returns etc, and whilst these are clearly important, they are also highly correlated to drawdowns and pull backs.
If we can limit drawdowns, we can amplify returns, therefore focus must be risk rather than just reward.
This simple video gives importance and rationale as to why limiting losses, or worse a market crash, is so important, and how the impact of a sizeable loss impacts hugely on recovery.
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As a professional trader I have consumed hundreds of financial books and endured countless hours of self education. My hope is that this channel will reduce the learning curve duration of many aspiring traders by providing the key information in a concise and enjoyable manner.
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This analysis completely omits the fact that going to cash is a taxable event. I'd like to see these same scenarios played out with taxes included.
Wow awesome point on recouping losses. Everyone knows a loss is bad, but no one realizes how difficult recovering is if you lose too much. I was in the group that thinks a 50% loss can be recovered with a 50% gain. Glad to learn great information here!
Thanks 👍
Not everyone,
Just some random or organized group of less informed champions.
Another great one! Thanks for being one of the best channels out there and keep them coming!
Thanks OMG🙏
Thank you for your excellent informative content. Great channel!!!
Thanks for watching!
tnx for the Content. i use 8% stop loss when there isnt a good technical stoploss after enter a position. however, the actual stop losses are less than that, the average is about 5.5%. that 8% is the absolute maximum. sometimes gaps happen but it's ok. it can happen to everyone even pros. In the end, keeping losses small can save you in a long time investing.
Sounds solid
One of the very important but often overlooked concept- The % illusion..great explanation.. very aptly said-the key is to have some form of DD management..👍
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Is your membership group on TH-cam different to the membership group on your site?
you can get him
@@LeighRemedios I now have just the one membership at www.financialwisdomtv.com
@@FinancialWisdom ok thank you
SIR....AS ALWAYS YOUR CHANNEL IS ONE OF THE BEST FOR LEARNING ON TH-cam AND TODAY VIDEO IS BEST EXAMPLE OF THE SAME..........KEEP IT UP SIR.
If I had to select the most important presentation in your channel I would pick this one because if you'r able to limit your draw down you'r at least able to learn and still have the money to trade so chances are high that to survive the initial phase. Glad to see that you mentioned the "stress" factor that is usually overlooked by trading advisors and literature. What could be added for people like me who are retired is the danger of having significant draw down and during that phase you need to take out money for living expenses. This could amplify the percent effect even more as you start with a much bigger asset base than you recover later. People should not only care about percent performance (gains/loss) but look at amounts of money made or lost as well.
Well said Jean. 👍
I am a fan of FW, myself and my son really love the scuttle voice and clear communication, i learnt about drawdown from sir van tharp, yes drawdown, position and Risk reward are key to be in the business of trading, a quick suggestion is during down trend, (death cross) its better we go short and for people who are for long term holding(as there are dividends) its better to use covered call using Options (there is a downside) where you need to have 100 qty of the stock to even hedge for 1 option. :) - Sam
Thanks Samuel.. Good point👍
Excellent, spot on.
Good content. Sometimes difficult to implement as shown though.
Draw Downs are a normal part of trading.
Catching, or limiting downside risk is very important though!!
Even the best in the industry, Peter Lynch always dropped more than the market, but far outperformed the market on the upside, averaging over 29% per year for over a decade!!
Hope your drawdown in this period is not too bad 😉👍
Hi Artem - Very true, yes its not too bad, the next week or so will be telling....
@@FinancialWisdom I am excited for the market to move up some. But my overall feelings not too positive for the next 6 to 9 months... Hopefully I'm wrong 😃
Amazing thanks for the video
No problem 👍
amazing as always
Thanks Garth
Excellent video, my friend!
Thanks for the visit🙏
My happiness when I see the notification 🥳🥳🥳
Thanks🙏
Me too
👏
Only professional traders can make a correlation between when you posted the video and what happened in the market in November 22. Great content as usual. Hats off .
Thanks Chanel
Hey Gareth! This is the lesson I learned this year and hope I don't have to relearn in future years ;-) In a few other videos, you refer to someone "blowing up their trading account" when they were nascent traders. Can you confirm what "blowing up their trading account" means? Keep the hits coming...it's not how hard you hit but how hard you can get hit and keep moving forward. - Apologies to Rocky! Cheers!
Thanks Craig. Blowing up their account means taking it to zero or at least a very significant loss
Such a nice presentation bro. Keep it up. Love from india.
Thank you! Will do!
What kind of trading is there besides Breakout? Channel/Support-buyer/Dip buyer?
Hey, Could you make a video about trading strategies on oil?
At around 6:26 I REALLY do think that you need to just mention broken supports and resistances and ALWAYS using log scales. STILL one of the most effective SELL & Buy additions to ANY system IMvHO (but not THAT a HO)! Notwithstanding that omission you have discovered a brilliant format IMHO (I DO realise that the format can't include everything and isn't designed to do so!) 👍 So, that's a slap on the wrist, followed by a retraction and get-out statement.... a great skill of mine!! 😛🤔
NoAxe
LOL thanks for the feedback, yes there is so much that could go into these videos, I just try to open the mind of those watching whilst covering some points🙏👍
I’m just going to come out and say it !!
We don’t WANT your videos we NEED them 👍
Thanks Goldie🙏
Good Risk Leader Video🤲
Thanks🙏
Can you do TRADER VIC ?
the 2B PATTERN PLEASE THJANK YOU
Another great video I'm your fan
Thanks Daniel👍
@@FinancialWisdom thanks to you
Awesome, thank you ♥️💕♥️
Pls make a video & explain Mr Oliver Velez's trading as well as wealth creation long term strategies of monthly chart.
Thank you ♥️💕
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What is the math for percentage illusion? I watched the video, but was wondering if you could link/explain for my own personal trading
A simple example: you have 100 dollars and lose 20%, then you still have 80 dollars. Mathematically, you can calculate this as follows: 100 * 0.8 = 80. A loss of 20% is therefore the same as multiplying by 0.8. A loss of 50% is therefore the same as multiplying by 0.5 - you are left with 50 dollars.
To get back to the original 100, you then have to divide the remaining amount - here 80 or 50 - by 0.8 or 0.5: 80 / 0.8 = 100 or 50 / 0.5 = 100.
With any scientific calculator you can calculate the reciprocal value - key 1/x.
If you enter 0.8 and calculate the reciprocal, the result is 1.25 (1/0.8 = 1.25). With 0.5 you get 2 (1/0.5 = 2).
1.25 means you need 25% profit to get back to 100.
2.00 means you need 100% profit to get back to 100.
You can also simply calculate this with a rule of three: 100 : 80 = x : 1 -> x = 100/80 = 1.25 -> 25%
Which application do you to create videos ?? Please
Another great video
Thanks again!
Great point,....really didn't register until now shame on me....
yes, DD can be controled, if one makes sure that positions give uncorrelated returns.. thus, uncorrelated portfolio is the goal
🙏
MACD worked great during the pandemic crash, but it gave 18 false signals during the previous year, generating a lot of whipsaw and as a consequence huge commission expenses.
yes it is easy to look in hindsight with an indicator and cherry pick examples
May I know which indicator is that? The bottom ones
MACD
MACD or moving average will not solve the problem of drawdown. It is greatly delayed. Sure in a long drawdown, it works, but in a shorter drawdown, it won't work.
It does 😉
Thanks Gareth. Essential learning as always. I like the suggestion of concurrent short bets for hedging. The data on percentages is quite chilling. A powerful argument for never having a stop loss greater than 10%. Often much less if you're close to the 200 day EMA.
Hi William - Hope you are well.... thanks for your continued support🙏
So how do you determine how much money you should place on a bet? Say I have $10,000, should I be doing $1000 bets (10%)? So for example if I'm always betting 10%, if I make more the betting amount goes up. If I'm losing the amount would automatically go down. Say I'm down to $9,000. 10% of $9,000 would be $900. Like what's a reasonable bet size?
That would be a reasonable position size, but of course with a 10% stop loss too the risk drops to $1000
@@FinancialWisdom Did you mean $100? I think I understand what you mean.
So in a scenario where you would bet $1000 but would be willing to cut losses at 10% (you'd be out of the trade if it hits $900). A $100 loss would only be 1% total risk of your whole portfolio.
Thanks for the reply. Really appreciate it.
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which trading book is good for beginners?
My videos for a start :-)
Why not short a declining market instead of staying in cash?
Not easy to predict and the market has a long bias
Nice content. To me, trading the forex and crypto market is way better than any online investment 💯
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Yeah, as they say take care of your losses and the winners will take care of themselves
very true
You don’t always have to think long term. Investing/Trading is as much a tool for shaping your present financial situation as it is for forming your future one. Do you want to buy a BMW next year? Do you want to go on a cruise? Wouldn’t a vacation that was paid for with dividends feel nice?
If you are investing in the hope of buying a house, you will almost certainly be looking at longer-term instruments. If you are investing to buy a computer in the new year, you may want short-term investments that pay dividends or some high-yield bonds.
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The caveat here is that you need to pinpoint your goals first. If you want to go on a vacation in a year, you have to figure out the cost of the vacation and then come up with an investing strategy to meet that goal. If you don’t have a set goal, the money that should be going into that investment will doubtless be used for other purposes that seem more pressing at the time.
Dude have you been investing for 30 years? Just seen the description of your strategy PDF.
Yep, I’m mid 40’s started in my teens👍
Now I see why Gareth is successful..
..the very ability of having been in this game for 30 years indicates that he has really mastered psychology and risk management to a great extent.....even a fool can be profitable in a crazy Bull market but real test happens during a bear market..... well done !!
I don't see taxes being factored into your calculations.
Just simple compounding without withdrawals
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Hard to sell something, which is about patience and not immidiate gain.
Even if I would see this video 5 years ago, I would have been skip it. You need the scars to see the sense behind it.
Very true👍
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1000 likes
Thanks
10k to 18.9k is 189% gain? ALLRIGHTY.
Profit of 18.9k divided by 10k start😉
4:00 Compound interest
6:00 Controlling drawdowns
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