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Hi Michael,
Hope this finds you well!
I’m catching up on your podcasts slowly, finding each more informative than the last.
Wanted to pick your brain briefly; I began my Trend Following system in January of this year, using a slightly modified turtles system (entry on 10 day breakouts, exit on 5 day, unit size at 0.8% of account, pyramiding up to 5 units per security, and a total risk limit of 12 units open per direction). I started this setup after 6 months of extensive backtesting on a 25 year market history across 20 securities, and found that the quicker entries and exits allowed me to catch more trends, and to capture more of each trend at its beginning and end. This allowed (in the backtest) for superior returns, and shortened (and less severe) drawdowns.
Since January, my account has gone from £50k to around £17k. I am very aware that drawdowns happen, and that the best thing to do is keep going, and that this is all part of the challenge. (Also that the parameters I have selected make drawdowns happen more quickly). However, owing to the setup, when the volatility of a security rises, or account size drops, securities can drop out of the tradable size range (one lot of a security may represent greater than 0.8% risk to my account, under my rules). When I started, 16 or 17 securities of 20 were tradable, now I’m down to around 7. Obviously as more drop out, it becomes more likely that I will miss the big trends which I need.
What would you do in my shoes? I’m well aware that the correct course is to keep going. However there are other options, such as increasing the risk per unit, or adding more capital to the account. I know that both of these go against the principles, but I worry that soon all securities will drop out of range and I will have 0 chance of recovery from this drawdown.
Thank you. Keep up the good work!
Oscar
I don’t suggest clients trade those time frames. Too short. Also, your diversification could be an issue.
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