I am reading your book Trend Following, the fifth edition and I am really enjoying it. From reading the first few chapters I was learning that trend following has greater upside volatility and less downside volatility because traders have set up strategic stop losses to limit the downside. Therefore with these rules in place to protect their capital, I was surprised to learn that there are inventive drawdowns in even the most successful trend traders like DUNN Capital. I am confused about why these trading systems wouldn’t be exited earlier as I thought one of the major goals of trend following was letting your profits run and cutting your losses short. Finding drawdowns of 43%, 40%, and 63% in DUNN capital’s performance does not seem to be cutting losses short. Are these drawdowns more unique to DUNN capital as they are going for absolute return? Or is it inevitable that there are going to be large drawdowns in every system and something every trader has to be comfortable with? I would really appreciate any response.
Where do DDs come from? Many small losses that add up. Not from one market alone dropping 50%.