Adrian Reid explains how traders often react emotionally to dollar-denominated drawdowns seen in backtests or live accounts. He recommends normalizing statistics—looking at percentages and comparing to system expectations (e.g., equity curve, win/loss ratio)—so that typical drawdowns are correctly interpreted and don't trigger undue panic.
We look at a back test in a very clinical way. It's like, oh, look, there's the equity curve. That's amazing. Over 30 years, look how much money we have made. And yes, there's drawdown. I'm comfortable with that level of drawdown. And oh, it's 30% winners, 70% losers. Yeah, that's okay. I can deal with that. I understand trend following. You know, it's yet another thing to have your account go from a hundred thousand to seventy thousand or from ten thousand to seven thousand or from five thousand to four thousand or from a million to seven hundred thousand.
You know when you think, when you start thinking in terms of the dollars, how much did I have? How much have I got now? Whoa.
Something'S broken. Like no, it's perfectly normal drawdown. I think normalizing the stats and looking at the percentages and comparing back to the systems constantly is really, really good practice. Otherwise the dollar drawdowns will freak.
