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The Complete TurtleTrader: Extras 2

Turtle Liz Cheval:

Clearly, if I could alter my model to reduce volatility without sacrificing high performance, I would. But, volatility is what creates the high returns investors want from the market in the first place. The key is to control volatility and not let it control you. Too often people dismiss a high volatility model because it is volatile. A common misconception is that high volatility trading implies more risk. Investors become so frightened by viewing peaks and drawdowns that they overlook the much larger benefit of the ultimate long-term outcome. They have to realize that with a well-planned, disciplined model, big swings in equity are very much anticipated and do not signal a loss of control. The underlying concept that argues for accepting high volatility is that within a winning framework, aggressive trading will maximize returns. In any game, if you know you’ll win, naturally you’d make your bet on the outcome as large as possible. The same is true in trading when you have reasonable expectations of positive returns. The only difference is that the degree of aggressiveness in trading is limited by two factors: the need to preserve capital during losing periods so you can stay in the game until a winning period and the need to preserve psychological fortitude to keep playing.

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One comment on “The Complete TurtleTrader: Extras 2
  1. Mel says:

    Thank you for posting this, Michael. I chuckle every time I hear about a large successful firm trying to cut down volatility while maintaining similar results. Liz keeps it real. I love it.

    How can anyone gain weight by eating less food? As my trainer in college says, “If you want to be big, you have to eat and lift big.”

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