2013 Allocation Question

[Guest Corto]

Kim, anyone:

 

I am starting "fresh" in 2013 with a clean allocation and am going to track how Kim does, allocating 10% of capital per trade (however I will not be taking an non-earning trades).

 

My question is, what is a reasonable drawdown at what point you say to yourself maybe this isn't a bad streak, maybe it is time to reassess and decide it's not working out?  Assuming a 10k allocation, with at most 6 active trades, you hit a wall if you are in 4k drawdown, or 40% lost in the portfolio.

 

40% seems like a ridiculously high level, but I'm wondering if anyone has such levels set.  I am thinking 10-20%.  Any opinions, please?

 

I am in my 5th month here and currently down 7.5% (assuming 20k portfolio, which I have just switched to 40k, so with that # I am 3.75% down).

 

There will come a time for me, I am thinking a full 6 months, that if things don't turn around, regardless of Kim's performance, it will be time to move on.

 

Thanks,

 

Mike

[Kim 7,943]

I think this is a question that only you can answer. Everyone has different risk tolerance and different goals. How much do you consider a reasonable tuition before you start making money?

 

But why you are increasing allocation before you make money? First prove yourself you can make money with 10k for at least few months, then increase it to 20k, then to 30k. I never jump too much - there is always a risk that a losing streak will come exactly after you increased the allocation.

[Guest Corto]

I have been doing 10k for 3 months and 20k for a half month.  To me that is long enough to understand what's going on, how to get in and out and I have no issues going to 40k.  Whether this is successful for me doesn't matter if I am risking a % of 1k or 4k per trade.  For me, other than the month of Dec which was a small positive, it has been an overall losing streak.

 

I don't really think of it as tuition.  The system will either work long term for me or not.  I generally don't make mistakes in trading, so the record so far is that I am, on average, making some percentage less than your trades.  Which is fine, as long as it ends up positive in the end.

 

It is likely increasing my allocation will make it easier for me to decide whether to continue or not since the numbers both ways will be larger.  Honestly, the 1k trades profit/loss is not worth the time and effort when the trades are making or losing me in the range of -$150 to +$150.  Yes, I know it is money, but I still spend more time than I want managing.

 

I am mentally prepared to lose 15% before I throw in the towel.  According to your performance chart, you've had the system running for about 18 months, with only 4 down months.  If that track record holds even partially, and discounting commissions and slippage, I would think I stand a good chance of never getting to a 15% drawdown and your numbers easily bear that out.  If I do hit 15% down, I'll move on.

 

If I average 7% loss on 4k trades, and factoring in some for commissions, I have to lose on ~20 earning trades with no winners buffering that to hit 15% down.  Seems reasonable to me.

 

Mike

Edited January 4, 2013 by Corto