Way of the turtle

Equity Curve - Linear Scale with Drawdowns
Jul 20
06
Total Equity and Drawdowns
Jan 2006
Jul 2005
Jan 2005
Jul
2004
Jan 200
4
Jul 2003
Jan 200
3
Jul
2002
Jan 2002
Jul 20
01
Jan 2001
Jul
2000
Jan
200
0
Jul 1999
Jan 1999
Jul
1998
Jan 1998
Jul
1997
Jan 1997
Jul 1996
$6,000.000
$5,500.000
$5,000,000
$4,500.000
$4,000.000
$3,500.000
$3,000.000
$2,500.000
$2,000.000
$1,500.000
$1,000.000
$500.000
$0
0%
–10%
–30%
–20%
–40%
–50%
Figure 7-2
Donchian Trend Results: January 1996 to October 2006
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frustrated state, after having lost one-half or more of the initial
account, the trader bails. This is the major reason new traders are
unsuccessful even when they use valid strategies: They have over-
estimated their ability to withstand the large fluctuations that come
from trading at aggressive risk levels.
From my personal observations, most people cannot sustain
drawdowns of this sort. A successful trader who has a lot of confi-
dence in his trading, his system, and his testing may be able to with-
stand a large drawdown, but a prudent new trader should adjust his
risk accordingly to reduce the likely drawdowns. This inevitably
also means reducing the returns that will come from trading the
system. That is a wise compromise.
As Turtles, we were lucky since our boss, Richard Dennis, did
not look at drawdowns that happened as a result of giving back prof-
its in the same way that he looked at drawdowns that happened
because of a string of losses. He knew that giving back part of the
profits was a part of the game for trend followers. 
For that reason, he was a very easy boss for whom to manage
money. Most other investors would have panicked with the kinds
of drawdowns we sometimes incurred. If you look at the returns of
the former Turtles who have been the most successful at raising
outside money, you will see that they are trading at a greatly
reduced level from their Turtle days. This is practically a require-
ment if you want to raise institutional money.
Unfortunately, you cannot make the 100 percent plus returns
we did as Turtles without drawdowns at these levels. I think my
worst drawdown was something on the order of 70 percent. I don’t
know many people who can sustain that level of drawdown. It is
very difficult on most people’s psyches.
By What Measure?
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