SPECIAL REPORT # 2
HOW DRAWDOWN MINIMIZER LOGIC CAN
REDUCE DRAWDOWNS AND RISK
This Special Report reveals an amazing method to reduce risk
by staying in good trades, but trading with small stops to avoid large losses.
Usage of stop-loss orders is normally critical to trading
success. The most famous trader of all time, Mr. W. D. Gann, said repeatedly in
his books and commodity course that it's always critically important to place a
stop-loss order on each trade you make. That way bad signals and losing trades
will not likely wipe out your trading capital, thanks to your stop-loss order
giving you some protection.
Most systems and most trading methods require fairly large
stop-loss orders. That is because stops are frequently based on one or more of
the following logical (but frequently ineffective) methodologies:
a) Place a
stop at a pre-determined percentage of the true daily trading range. For
example, if the true daily range or average of recent true ranges (High minus
Low, plus any gap between prior close and today's low or high) is say 83
points, then the stop may be set at perhaps 120% of that range or about 100
points. In the Deutsche Mark that equals $1,250.00 stop, plus any slippage that
b) Another method is placing a stop-loss just
under the last swing-low or pivot-low. Note: A swing-low is a low point with
higher prices on each side. For example, if last swing-low was at 7650 and
price moves up for a few days to say 7750, then triggers a buy signal, stop may
be placed just under the low price of the low day, perhaps at 7649.
That also represents a risk of over 100 points ($1,250.00+). Of course, the
reverse is applicable on a sell, with the stop being just above swing-high.
c) Use a moving average penetration as a stop,
i.e., place a stop on a long trade at just under a simple moving average,
perhaps a nine-day average. The trouble here is that if we entered long at
about 7750, by the time the moving average is penetrated by the price, the
moving average may be well below the market (due to its inherent lag-time), at
7600 or so. That results in a stop-loss at 7599 stop, and a risk of about
d) Still another approach is to place a stop
under last week's lowest price. This method may be even riskier because last
week's low may be 7550. That requires a stop of 7549 or lower, and a risk in
excess of 200 points or over $2,500.00.
e) Another simple and a totally unscientific
approach is known as a "money stop." It involves setting an usually
arbitrary stop based on either the maximum money you wish to lose, or stop
based on a reasonable sounding number of points or dollars.
For example, psychologically you may not want to lose more
than $1,000.00, so you set your stop at a price equaling $1,000.00 loss
potential. That number is arbitrary, so it may turn out to be either too small
or too large, depending on the volatility and the market involved. For example,
perhaps it's too small a stop for T-Bonds when they're volatile, or too large
when they are dull. If using the $1,000 stop-loss in the Corn market or another
low-risk low volatility market, it may be too large a stop to use.
there a better way to set stops scientifically and more accurately, thus
enabling me to keep risk low and still avoid getting "stopped-out"
needlessly and stay in the potential winning trade?
A. Yes! By using "Drawdown Minimizer
Logic." Drawdown Minimizer Logic is an amazing way to set stop-loss levels
very tightly to guard against large losses, yet keep the stop scientifically
and strategically placed just far enough away to prevent premature hitting of
the stop-loss; thus keeping you in most trades.
Don't worry if this methodology seems too technical, because
it's really much more simple than it first appears to be.
"D.M.L." is based on the maximum adverse movement
(excursion) of past winning trades. For example, review the last "X"
number of back-tested profitable trades and determine the adverse negative
excursion incurred on each trade.
The idea is to look at the smallest stop-loss orders that
would have kept us in at least 80% of the past back-tested winning trades. The
worst 15% of those back-tested winners are eliminated from consideration.
Another important consideration is to review a sufficient
sample of trades for statistical validity. According to statistical research by
mathematicians, 30 samples are considered an optimum number to review. However,
depending on your trading system's frequency, 30 past back-tested trades may
take too long a period to test properly or reflect recent volatility.
Therefore, it may be best to work with a minimum number of
10 to 15 past trades. Ten to 15 back-tested trades should work well, but 30
trades are still considered an optimum number to use. However, if it's not
practical to use 30 trades, you should at an absolute minimum use 10 trades to
calculate the maximum adverse excursions. That way the numbers are still fairly
valid from a statistical sampling standpoint.
If the past adverse excursions of those 80% trades went NO
MORE than 15 Points negative before eventually being closed out at a profit, we
can subsequently set our stop-loss at 16 points. Scientifically we should be
able to stay in the vast majority of eventual profitable trades, yet have
low-risk by risking only 16 points per trade.
Back-tested closed losing trades are not calculated, because
with this amazing technique we only care about winning trade stop levels, not
losing trades. The losing trades, of course will have potentially much larger
adverse movements. By scientifically using the winners to calculate stop
levels, we also take care of the losers by sharply reducing the losing trade
"Drawdown Minimizer Logic" © will sharply
reduce your risk level and drawdown potential. It's a proven and scientific way
to drastically reduce risk without significantly harming overall profits.
This amazing loss reduction technique will allow
comparatively small stop-losses, so your losses are small but still allow for
consistent good size winning trades and possibly make lots of money with
sharply reduced risk.
It's extremely effective in sharply lowering risk, but still
keeping you in winning trades. Surprisingly, few traders use or have heard
about this amazing technique, because it's rarely publicized due to the fact
large successful traders want to keep it secret.
Many successful large traders use "D.M.L." as the
most important ingredient in their trading. "D.M.L." may be the
primary reason for their great success!
P.S. - This potentially profitable and informative
(copyrighted) Special Report is regularly priced at $50.00 (but free to traders
via the world wide web). It may seem like too much money for a few pages of
information. However, you should not judge something by its size, but by its
content and value. Drawdown Minimizer Logic is actually worth a great deal of
money, far beyond the cost of this Special Report. It will help you greatly in
Go to Real Success Trading Course Info-Guide by clicking
here Real Success Trading
Go to or Return to Special Report One on Swing-Highs/Lows by
clicking here Special Report One
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