Way of the turtle

145

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MAR Ratio as Stop (in ATR) Varies
0.0
15.0
14.
5
Stop (in ATR)
14.0
13.5
13.0
12.5
12.0
11.5
11.0
10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
Figure 10-6
Effect of Stops on the Dual Moving Average System
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Many traders believe that what they need to worry about is the
risk of a series of losing trades. Although this may be true for short-
term traders who have trades that last for a few days, it is not true
for trend followers. For trend followers, drawdowns also come from
trend reversals, usually after major trends. Sometimes the trend
reversals are followed by very volatile markets in which it can be
extremely difficult to trade.
We Turtles knew that giving up part of the profits we had accu-
mulated during a trend is a normal part of trading as a trend fol-
lower. We knew that we would experience large drawdowns.
Nevertheless, this was really painful for some of the Turtles, espe-
cially the ones who were the most affected by losing money. Watch-
ing profits vanish after they have just been earned is the hardest
part of our style of trading.
Thus, it is not entry risk that causes drawdowns for trend fol-
lowers; it is giving back profits. This will be covered more exten-
sively Chapter 11, but first let’s return to testing the systems.