Short spoken guidance by Adrian Reid on how to handle drawdowns observed in backtests: diagnose the behavioral cause (e.g., market collapse from a pandemic vs. churn of small losses) and apply targeted remedies such as market-stop rules (exit if index drops 20–25% or below a key moving average) or stricter trend filters to avoid trading during sideways churn.
If you can figure out what behavior leads to the drawdown, then you can put something in place to address the behavior. So for example, if the drawdown was caused by a sudden collapse of the market from what was an all time high caused by a pandemic, and the market just went and so you had a big drawdown, then the solution might be, well, if the market drops 20% or 25%, or if the market drops below a key moving average, you just close the trades, you get out and you go to safety. If the big drawdown is caused by churn, lots of small losses, death by a thousand cuts, then you might need a stricter definition of trend on the index to say only trade the system when the market is really moving.
So go dig into, put your detective hat on and dig into what caused that, and that will then help uncover solutions.
