I would like to know how often does a drawdown occur when trading a trend breakout strategy and when it does, how long does it usually last?
Normally the drawdown period comes when the markets become choppy. I have traded several trend trading strategies and the same thing happens every time… you have maybe 2 good weeks in a month where you can make double digit % growth, but then comes 1 or 2 weeks where you can lose most of what you had gained because of choppy markets.
However, if you know how to exit trades with small losses instead of taking full stop loss hits when you know the market has turned choppy, you will be profitable. So is this how it for everyone else that trend trades or are my strategies rubbish? I trade all timeframes, but mostly 15 min charts.
Far be it from me to say anyone’s strategies are rubbish - they might be driving a Maserati and I’m not. However, I would never attempt day-trading, maybe it suits your character, but not mine in a million years.
I use trend-following only, and only on long-term positions off the daily so not identical to what you do but parallel. In August I started the month flat with no open trades. Trades started to open as orders triggered from the 31st July. 3 trades opened in week 1, 7 in week 2, 6 in week 3, 4 in week 4. I pyramided all trades as soon as they advanced by 0.5 x ATR20. I closed all remaining trades on the 30th.
I should say that I was net losing until at least late in week 3. I think this is to be expected with a trend-following strategy. Things are really volatile when you open the first few trades and some of these get stopped out, so their net loss can never be improved. But you pass a break-point after which you have only healthy trending trades left open and then you’re in the black. I would have made a small profit without the pyramiding but adding to winners meant I got about a 10% gain. Hang on in there.
Hey @kev267, You have raised a few very good points with your post. In real FX Trading. drawdown is a serious issue and one that only trading psychology and experience gives you the power to take in your stride.
A perfect situation was the XAUUSD yesterday (7/09)… Gold has been ranging for the last couple of days/week, so I open 3 Short positions at various levels waiting for the price to gradually go down… At the London Open the market starts to push the XAUUSD upward against my positions… a sure sign manipulation is underway… now I have 3 open shorts all going negative over the Euro session… drawdown is up around the $700.00 across 3 positions… I have software that is signalling that the LP’s are trading in the opposite direction… Then at the New York open XAUUSD suddenly reverses and goes big time short (850 pips)… 3 TP’s in 5 minutes and a nice clean exit from the market…
Now, I was confident that I had the crosses overall direction correct… so the ~$700 drawdown wasn’t really an issue… 12 months ago I would have panicked and closed all 3 for a loss only to have the market go in my favour shortly after…
What’s changed in 12 months??
A. Now I look at the Daily and Weekly TF’s and understand that with this pair, the price was heading down, sort of like applying a Master Time Frame Strategy ( Watch 3 TF’s higher than the TF your trading) … So if your trading the 15 min predominantly watch the 4 Hour / Daily Charts to get the bigger picture.
B. I check that the pair I’m trading has ranged through my TP levels (Price) a few times within say the last 1 - 4 weeks, which gives me a little more confidence that it will come back to this point again sometime, allowing me to 1. Close my positions with a smaller loss or if I’m correct 2. Give me a small profit and not give the positions to the market…
C. If you don’t reside in the US you can hedge your position and hold increasing drawdown without closing out your position and locking in the loss… This thread may give you a little information on how to apply a Hedged position to turn a definete loss into a potential win. ALWAYS practice this first on a Demo account…
Summarizing, yes, drawdown is an issue for ALL of us trading FX. But by using systems I have listed or any other measurements that give you confidence that you have got the big picture correct aleaveats a lot of the stress that drawdown can generate.
I Hope this answers your question and is of help for future situations.