Way of the turtle

Figure 7-1
Donchian Trend Results: January 1996 to May 2006
Copyright 2006 Trading Blox, LLC. All rights reserved worldwide.
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Many new traders will be seduced by the profits of a system with
results like this, thinking, “Surely I can sustain a 38 percent loss in
return for these kinds of profits.” Unfortunately, experience has
shown time and again that people are not very good at estimating
their tolerance for these sorts of things. This is especially the case
if all you are looking at is a graph like the one in Figure 7-1, which
uses a logarithmic scale that tends to make drawdowns look smaller
than they look on a standard scale.
Confident in the results of this system and in his ability to with-
stand these sorts of drawdowns, trader John Newbie begins trading
on June 1 with $100,000. Figure 7-2 shows the same results as those
in Figure 7-1 updated until the end of October 2006, using a lin-
ear scale that outlines the historical drawdowns.
Shortly after Newbie begins trading on June 1, the system enters
a period of drawdown that is slightly higher than anything shown
in previous tests: a drawdown of 42 percent. What is going through
his mind at this point?
Lots of doubts, fear, anxiety, and countless questions: 
“What if the system has stopped working?” 
“What if this is just the beginning of an even larger
drawdown?” 
“What if there was something wrong with the way I did my
testing?”
“What if . . .?”
These types of doubts often cause a new trader to stop using the
system or start selectively taking trades to “reduce risk.” Many times
this results in the trader missing out on winning trades, and in a
By What Measure?
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