On Feb 6 I wrote a piece called ‘My big fat drawdown’, in which I charted a 33% drawdown in my equity. The actual trading loss was half that amount but I had to withdraw a further £2000 for upcoming expenses, and I included this in my drawdown calculation. After some thought, I’ve decided to add this £2000 back in to the pot and to take the hits when the expenses actually crop up. I’m doing this because I want the pot to represent my total liquidity. (See above for the amended table and chart for February).
If you look at the table, its clear the end of 2006 coincided with a significant reduction in profitability. This reflects both a reduced edge and reduced risk taking; I believe it is imperative to reduce risk and re-evaluate the instant you perceive a change in your edge. I’m pretty confident that I still have an edge, but it’s definitely not as easy to extract a profit as it once was. Indeed, after two months of trading in 2007, I am up by only £1100 (after expenses).