Chapter
Drawdown and Losses
The only thing true about trading is that we will all go broke if we just stay at it
long enough. The longer we stay in the game, the closer we get to that one freakish
trading day, week, month, or year when everything goes against us. For some, it
might happen tomorrow; for others, it won’t happen in their lifetime but would have
happened had they been able to trade for another 1,000 years. The trick is to make
this freakish occurrence as freakish as possible. But no matter how freakish we
make it, the chance of it happening at any time (however minuscule) will always be
there, no matter how rigorous we’ve been at putting together our systems.
Most people don’t understand what I mean by this, and meet me with argu-
ments such as, “but I always have my stops in place,” or “I alter my systems with
the market conditions.” But it doesn’t matter what you do: the chance is always
there that at one time everything can and will go against you—whether the situa-
tion of bad luck lasts for two seconds or several years doesn’t matter. At some
point, it can and will happen, if you just stay in the game long enough.
One way to look at it is to compare yourself to one of the Highlanders in the
old Highlandermovie. These supernatural beings could only die by having their
heads chopped off. Well, there are people getting their heads chopped off all
around the world, all the time, be it by accident or by intent, and if that is the only
way to go for a Highlander, sooner or later it will happen to him as well.
Another way to look at it over a longer period is to compare it to a monkey
in front of a typewriter, typing out Shakespeare’s Hamletby pure chance. Chances
are slim, but they’re there, and it won’t happen overnight.
By the same token, the old trading adage, “your worst drawdown is still to
come” is equally as true. But it doesn’t have to happen first thing tomorrow, pro-
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