How to REDUCE drawdowns in trading

[@TheArtOfTrading]

🚩My Socials & More Free Content: theartoftrading.com 🚩Math of Winning Video: kzbin.info/www/bejne/fHivpqyuZcaAY6s 🚩Stocks on the Move Book: amzn.to/4eiskXZ 🚩RealTest Backtesting Software Guide: kzbin.info/aero/PLSP_1DBafH-GU2nFOOY8ersydiCRQgEWU 🚩Tons of my reference material is covered in my newsletter: theartoftrading.com/newsletter

[@amaljoy6809]

Hey Matt its not the cat but the quality and details you provided. Such in depth explanation in an entertaining way is the key to audience retention

[@TheArtOfTrading]

Thanks mate! Much appreciated. And I'll make sure to let my cat know it's not all about him, maybe it'll keep his ego in check 😂

[@mateoh327]

Hey Matt! Thank you for the video! I trade futures and while I used to use options to speculate, I've started using them for margin and risk control. For example 1 future+ 2 50 Delta puts = Delta neutral. If my entry was incorrect, I can roll down the 2 puts to where 50 Delta is now. The credit is almost exactly the loss in the future, so it's NOT averaging down, but it does functionally lower my entry point. If the future continues down, I can repeat the process for the same result as many times as necessary. It's a bit more involved because time value loss (Theta) and getting the hedge out of the way once price starts to recover as it will reduce the speed of profit are things I'm still learning. It is a theoretical way for new entries to "pick the bottom" though. I think it could work very well for longer term index futures trades.

[@TimmyTuyi]

I like that youre being realistic about your ROI. I really thought if i don't make 100% then I'm underperforming, i need a social media detox

[@TheArtOfTrading]

Lol that's completely spot on man, we've all been there (needing a trader social media detox) Don't get me wrong - I know of traders who have achieved 100% returns in a year, one of my trading mentors has done it before a couple of times. But on a fairly small account of well below $100k. That sort of thing is rare, and the risk and leverage and experience required is outside the realm of "normal" trading and very dangerous to pursue for most traders. Those sorts of returns are relatively "achievable" on a $10k account, but on a $100k+ account if you're making 100% returns every year you'd be the most sort-after trader on Wall Street before long, so expecting to achieve that is kind of silly. For example even my Weekly MR system which makes 30%+ ROR per year is a small cap system, so at some point I'll have to stop trading it or scale down my allocation because of liquidity constraints (buying/selling $20k+ worth of a $0.10c stock in a hurry is not easy to do without 20%+ slippage on that position) And yet I've made 10,000%+ in crypto before buying ADA in 2017 at sub 1c, but that was pure luck and a once in a lifetime situation. I made a massive amount of money out of that but it's not reproduceable so it's not realistic to talk about as a trader. Traders underestimate what they can achieve in the long-term and overestimate what they can in the short-term - 20%+ returns per year is reasonable achievable and over time can make a massive amount of money if you let compounding do its thing. And if you hit that random +10,000% return on a shitcoin or TSLA or whatever along the way - it's a bonus that just speeds up the accumulation! Anyway good luck out there mate. Cheers, Matt

[@tom-b2n2b]

Hi could you please timestamp where he mentions his realistic ROI? I watched through the video but couldn't find it. Thanks!

[@UltraFX-]

@@tom-b2n2b he didn't say his roi he just look at his strategy backtest that makes 30% a year

[@ramyomar]

Kudos for mentioning your sources and mentors

[@TheArtOfTrading]

100%! I'd be nowhere without them. I'm forging my own way as a trader, but I'd still be floundering as a rookie without their guidance. Nothing but respect for Nick Radge (thechartist.com.au), Courtney Smith (deceased), Steven Hart (thetradingchannel.net), Jason Graystone (jasongraystone.com) and Akil Stokes (tieronetrading.com) and Jason Stapleton (retired), and the many great books I've read and podcasts I've listened to (listed on my newsletter - theartoftrading.com/newsletter )

[@mikkosalorinne6820]

Great video. Maybe You could further underscore what is the difference between using multiple uncorrelated trading systems (which is a good thing) and hopping between different systems (which is a bad thing). It would be beneficial for beginning traders to understand the difference between the two. P.S. I was always going to watch this video but the cat bumped it to the front of the line :)

[@skyviewtrading]

This is a fantastic video. Spot on!

[@brucewwilliamson]

Thanks Matt, a lot of really good info condensed into this video, I highly recommend every trader watches it I do think you should diversify markets more than just FX, particularly into options and futures markets. Options can be very effective for hedging risk and with futures or options on futures you can further diversify into non-equity/fx markets e.g. bonds, energy, metals, agriculture, etc. Keep up the great work 🏆

[@8888mm]

Hi Matt , thanks for putting together another excellent video

[@tasmali5669]

Ok just coming back to say a big Thank You and praise your content! I came to the first six tips after many months of developing and testing mechanical systems, but tips 7-8 were new to me. Super nice ideas! That also brought me to a new idea: Testing whether an altered Risk Reward can make sense when trading the equity curve of the system itself (e.g. using 1RR instead of 2RR if the equity curve falls below some moving average). *fingers crossed that does not merely produce curve fitted results* ;D

[@artista4934]

Matt, I always like your videos. Maybe in future you can elaborate more on the diversified strategies one by one. For example how to use trends or momentums. Thanks!

[@kibisutrades]

the previous video with the cat and the Excel sheet was very helpful in terms of setting expectations for long-term especially when experiencing drawdown. I'm up for more useful contents like this, great job. if I see you in Australia ill give thanks personally hahah

[@YouTubecontent998]

What was the title of the video you’re referring to. I can’t see one with a cat and excel sheet. Thanks

[@kibisutrades]

@@KZbincontent998 I was referring to “THE MATH OF WINNING in Trading” video 😅. It’s the first video that he added his “cat” on the thumbnail lol. In that video he showed how you can access the free spreadsheet that he made.

[@R3dTiger888]

Were you able to get access to that spreadsheet? Because it didn’t let me without approval

[@kibisutrades]

@@R3dTiger888Yes, DON’T request access as said in the video select “Make a copy” then you can do whatever you want with it he just don’t want other people to edit the formulas there.

[@R3dTiger888]

@@kibisutradesgot it. Thanks a lot dude. Best of luck on your trading journey

[@krtkmz0728]

How do you switch your judgment when using multiple strategies? Even with just one strategy, I often experience doubts before making a decision due to past failures. It would be amazing to have the kind of objectivity that allows me to make decisions based solely on the strategy I'm using, without being influenced by previous failures.

[@TradesByBrandon]

I love your vids !!! I appreciate how much time you put into these breakdowns.

[@UltraFX-]

the previous cat video and this one are BANGERS

[@KuldeepRawat.]

Thanks for spreading knowledge. ❤❤❤ For how trader work for living..

[@jeroencommandeur]

Great content - very well done! I'd add another one: simply trade smaller. I know you mentioned that with reducing position sizes when certain drawdown thresholds are met, but I found that simply trading smaller by default already lowered the drawdown significantly.

[@TheArtOfTrading]

100%, most traders risk way too much out of the gate (usually because they start with a small account size and want to double it and grow it quick). Smaller position sizes = more long-term endurance, especially in the early stages of trading!

[@gholamhosseingorgin4799]

Good job as always. Thanks a lot , many thanks & appreciate

[@1robjames]

I think your cat worked, as both of your cat videos came up in my feed and I'm glad they did as I'm going through a drawdown 😂

[@PhilippeIncherman]

Hello Matt, thanks for this very interesting content ! Question: Why don't you recalculate the size of your positions after each trade? That way, you could take advantage of compound interest. I'm curious about this, thanks.

[@mrbullmrbull]

I am personally a tough guy psychologically, i can stomach 50% drowdown easily, so i invest in "low win rate - big reward" strategies. I consider it my personal edge, bc most people can't handle what i can handle. I believe that "smart money" hunts the ones that have 70%+ winrate strategies because they are usually weak handed people psychologically. I can be comfortable with 20% winrate and there lays the most money to win. Work on your toughness guys

[@StrokerSwe]

I really appreciate the video! But isn't the ROR (Rate of return) for the combined systems complete off? For a correct comparison each independent system should start with the same amount of captial, and for the combined system it should divide corresponding starting capital to each of the system. So for a combined comparison of a four-way system it should alocate a quarter to each system. Now it looks like you would get a 4x starting capital for free if you would diversify the capital across four systems, and that can't be right?

[@TheArtOfTrading]

Thanks mate! In the tests I allocate 100% of starting capital to each individual test when I do an individual test, but when they're combined only 25% of the starting capital is allocated to each system. So the starting capital is $100k USD for the single-system tests, and $25k allocation for the combined test. There's definitely a lot more nuance to running multiple systems in reality (especially multi-currency) and this was more of a theoretical overview than a literal example (I only trade 2 of those systems on live markets, the other 2 were purely for example purposes) - so I'll perhaps cover the subject of capital allocation to multiple systems in a future deep-dive video But RealTest does a fantastic job of multi-system and multi-currency analysis and capital rebalancing during the test, and that's all included in those theoretical tests

[@topfaktual]

Insane video, thanks! Question, why do u still have Jordan Peterson's videos in ur channel my friend?

[@donaldjessica4185]

This seems like the worst period. Even the market are now very unpredictable. Started investing recently when the market prices were a bit high, today I am more than 60% down!

[@ashishgodse9113]

pure gold info bro, very well done

[@NerdCrow]

Sick shirt dude!

[@bpetty6573]

Great Video Matt. What back testing software did you use? Trading view? I have not seen those metrics available on that platform. Are your systems developed in Pinescript or something else?

[@TheArtOfTrading]

My intraday forex and single-market systems are tested on TradingView because it's best suited for that, the stock market portfolio-based systems (which trade multiple stocks per system) are backtested with RealTest which TradingView is not suited for Here's a playlist to help get set up with RealTest (I plan to record more tutorials for the channel in the future - it's powerful software but quite involved and specific to stocks): kzbin.info/aero/PLSP_1DBafH-GU2nFOOY8ersydiCRQgEWU

[@ravenc703]

Thanks Matt I'm just starting out on my trading journey after moving over from ETFs, your recent videos have been really great to understand the psychology of trading and the pitfalls traders run into. Appreciate you sharing your knowledge with us, cheers mate

[@TheArtOfTrading]

That's great mate! Glad to hear it, good luck - it's a challenging but worthwhile journey. Active investing & trading is the hardest but also most rewarding thing I've ever pursued, both mentally and financially.

[@kibisutrades]

Because of this i'll run through my backtested data and I'll see the result if I use ATR for setting stop losses.

[@kibisutrades]

UPDATE: By using ATR for the dynamic setting of SL & TP I have seen a significant improvement. 👀📈

[@peter71131]

Thx great input. But these are beginner mistakes. Endure and learn

[@edzme]

thank you for another great video!

[@goldfishchannel]

gold !

[@neopabo]

Thank you, thank you, thank you for this video

[@BrokenYouth8]

Most newbie wouldn't want to understand this 😂

[@TheArtOfTrading]

100% - hence the high failure rate in trading I guess :( but those who persist learn eventually (or give up)

[@Ivontayfitzgerald]

Definitely 😂

[@Parkdogg]

4 year newbie here. I am absolutely intrigued in this lol 😂 the psychology behind trading needs to be heavily studied and understood because human behavior is funny with this one. I have been a lazy trader for so long and there comes a point when you get tired of not knowing what the next trade holds for you. Will I hold until I blow up the account or will I sell to quickly and regret not holding for a higher gain. There is no winning if your aim is consistent happiness. I’m currently trading options in the spy and I’m just winging it. 😂 I do analyze price levels and candles but it’s not a science at all. I generally scalp the winners between 10-20% but my losers are always 30-50% + due to horrible stop loss discipline and martingaleing. I’ve wiped out tens of thousands of 2021 luck gains over the last few years. I’m not sure why I haven’t given up yet. I’m definitely in need of a professional overhaul on my mentality and approach to trading. I’m also not stupid as I am a financial advisor at a mutual fund so I understand the mechanics of markets well. I also have hundreds maybe thousands of screen time watching charts and price levels and level twos. That’s not lost knowledge and I would like to develop the discipline to where I can effectively leverage my knowledge into successful system management….

[@aesthetic_surgery]

Could you create a Realtest system trading course? There is a lot for amibroker but none for realtest.

[@youngtrader517]

Thanks for all! You help me with every Video. I have a Portfolio from my 6 Strategies. Backtesting Stats over 10 years: +90% per year and -17% Drawdown (1% risk per Trade, without commision). I tested the strategies individual with monte carlo method. What do you think about it?

[@TheArtOfTrading]

I think +90% sounds way too good to be true so definitely make sure to double-check your code isn't cheating by referencing future data (postdictive errors) or not accounting for historical constituents (survivorship bias) - those are the 2 main risks with a test that's too good to be true, on the stock market at least. Other issues might be not accounting for liquidity and commissions (ie. trading 10c stocks that go to 15c is great if you have $10k, not usually possible if you have $100k+ allocated) Just a few thoughts - personally I'd be sceptical of a system with results like that if I made it myself just based on experience testing systematic trading strategies

[@youngtrader517]

@@TheArtOfTrading Thanks for your reply. I trade it on GBPJPY and Dax40. I checked the code a few times and all is fine. Its only Priceaction and without commissions (so -20% for my broker and excecution). I also trade it since 5 months, 1 big profit month and 4 breakeven.

[@krin_c747]

This type of systematic mathematical explanation to the market help me to learn many things . Can u also explain like what is the over all internal structure of funds like medallion .

[@ViperTradesOG]

Really nice video, I see we have almost the same view in a market :D

[@fxtrdr4]

Good info. I use an EMA on my daily EUR/JPY system equity curve. It may seem counterintuitive but limiting position size on draw-ups works effectively at reducing drawdowns as well

[@TheArtOfTrading]

Very interesting, that's an idea that is definitely worth its own deep-dive research video on protecting accumulated & open profits after a run-up. I'll add it to my todo list 👍

[@fxtrdr4]

@@TheArtOfTrading After all, drawdowns start at tops. I look forward to seeing the video. Thanks for your content 👍

[@dontshowmeyourindicators]

Least spoken subject , Great video boss 🫡 Subbed and Noti on ✅ Waiting for more Gems 😁🗿

[@DRATER469]

Hey matt what program are you using to backtest these strategies?

[@DRATER469]

Ah real trade. Just finished the video 😅

[@TheArtOfTrading]

@@DRATER469Yeah sorry I thought I'd included that in the video description but forgot - I have a short tutorial series to get set up on RealTest if you're interested. It's a great piece of software (not affiliated - just love it) - kzbin.info/aero/PLSP_1DBafH-GU2nFOOY8ersydiCRQgEWU

[@bobiallu]

thanks for the work you do, it helped me get realistic with my trading.

[@TheArtOfTrading]

Glad to hear it! I felt the same way when I learned a lot of this stuff for the first time - it really grounded me and helped me stay focused on process over outcome and the long-term game. Good luck with everything.

[@damiandamiano3651]

1. Dont mąkę them, 2. If you see shid going down sell 3/4

[@aravindtiwari9702]

Great content. Keep up the good work. ♥️

[@bennybabylon43]

More cats please

[@TheArtOfTrading]

I'll run it by them - their chicken wing fee might increase but we'll make it happen if we can

[@SSEnrich]

A little confusing this. I liked the video, and there are things I would use here in the future. However. It is easy to find people who say they are very profitable by trading one strategy on one time frame.

[@YouTubecontent998]

This is more of a professional money management mindset. Imagine you’re trading a fund for family/investors, would you feel better having all that weight on your one timeframe intraday strategy or a handful of strategies. Again it’s always best to start with one but these aren’t beginner concepts being discussed here. For a beginner the better option is probably the reduction of risk at certain percentages of drawdown to flatline the down curve

[@TheArtOfTrading]

@@KZbincontent998 100%, that's the foundational thinking behind this video. Aggressive single market systems can make a lot of money but they can also pose high risk of loss, which might be desirable with a small account but is devastating to a large account. They're also quite easy to curve-fit and make a system that did great on historical data but wouldn't do well in the future

[@carlhopkinson]

Most traders depend on trading incone to fund their lives...so, your endless patience approach is a non-starter.

[@carlhopkinson]

Ur system will turn profitable in maybe 29 years.

[@SSEnrich]

This video does not seem for just newbeginners. A little more advanced stage. Anybody else like me? I am on the fith trading year. Last 1 and a half years has just about been profitable. The thing though. The dream is gone. I hate trading. It is boring. Even when I win. There is not FOMO anymore. No looking forward to Mondays (forex opening). I have backtested more than 70 strategies and forard tested over a 1000 times. It is all quite much shit. Why did I start this? Then again. I might just be depressed/burnt out overall. The question is whtwher one should take 6 months or a year off from trading. Then return.

[@ColdPrime]

How can I get that software you use to calculate your drawdowns and also compare systems in this Video?

[@TheArtOfTrading]

It's called RealTest - I have a few basic tutorial videos on the channel if you want to get it set up - kzbin.info/www/bejne/e5esaqWMoa2UjbM&ab_channel=TheArtofTrading Amazing software 👍 nothing else quite like it aside from AmiBroker which is also great, but RealTest is something special.

[@8888mm]

Ray Dalio the importance of diversification in inversting

[@owncreatechannel6426]

Hi sir creat me a profile flow indicator 😊

[@Ali-xr7su]

The way I see it, this is unnecessary complicated, you basically said diversify in EVERYTHING. It might works for you, but for most of us, it should be simplified, for example focusing on one system, one market, one timeframe. Being a master of one, not being jack-of-all trades by jumping from one to another.

[@TheArtOfTrading]

That's fair - the first 3 tips are basically to diversifying everything, and that's what I do But the idea of this video isn't to implement all of these options simultaneously, just a few that suit your system and trading style - diversifying timeframes alone can have a positive impact on drawdown depending on the system (eg. forex trading where trading many timeframes is easy to do, or diversifying currency pairs) In fact the key takeaway should be to backtest all your ideas to see what impact they have - don't just take my word for it, pick a technique or two and go and test it (that's easier said than done I know - but I have some tutorials on my channel for backtesting, and plan to expand these guides in the future)

[@Alphaa101]

👍👍👍👍

[@TheHiddenTrueSecrets]

wow you made $250 in 24 years 😂

[@TheArtOfTrading]

Off every dollar invested in the beginning!

[@carlhopkinson]

Yea, it's called hedging.

[@xueya2188]

Bad Brains

[@TheArtOfTrading]

The youth are getting restless!

[@angelofdeath4779]

Trader ❌ Content creator, youtuber ☑️☑️☑️☑️☑️☑️

[@TheArtOfTrading]

I have every spare cent invested in my systems. I have nothing to sell aside from my coding courses, my youtube revenue maybe makes $1k a month at best, and I have $500k+ invested in the markets - so I may be a youtuber and content creator, that's fair - but I also have skin in the game! For whatever that's worth.