Hello there. I just got word that GalleonFX has decided to publicly answer one of their most often received questions. So why don’t they take profits while they’re ahead? Good question, and here is the answer:
A common question we have been getting is along these lines…
“I notice my account making nice gains and profits but then there may be a pull back and I find myself in the negative again. Why don’t you take profits while you’re ahead?”
The answer can actually be quite deep and complicated but I’ll attempt to keep it simple.
We back test our systems for 5 and 20 years so statistically our system have been saying that we have a better chance of making more gains if we do NOT close out positions just yet.
For example, if we intervened in September 2007 after being up 20% and closed positions early saying “This is enough for the month”, we would have missed out on 45% more profit. Unfortunately Jan 2008 was significantly down but our next few months maybe significantly up if we do not intervene and stick to our technical system that has been working over the long term.
A major point in developing technical systems is to stick to the rules and to avoid human emotions, greed and fear. A major reason why we have had good success over yearly time periods is that we do stick to the technical rules and strategies in place and to not let human greed and fear take over.
This does not mean that we sit on the sidelines and do nothing when we are experiencing a draw down. It is actually quite the contrary. Draw downs are accompanied by a lot of stressful analysis finding technical solutions and indicators that could have helped us to prevent such a draw down.
As you can imagine it takes a good bit of time to complete an iteration of the process we go through. For example here are some steps and thoughts we go through in the process.
- Significant Draw down experienced after a certain time period.
- Evaluation of systems to determine what if anything went wrong or if something can be improved.
- Are we experiencing new market conditions or are our strategies flawed.
- Pattern recognition and analysis of conditions takes place.
- Identification of cause of draw down.
- Theories and solutions are hypothesized on.
- Either changes are made to existing strategies or new strategies are created.
- Thorough iterative back testing is done to prove our theories of improving performance or minimizing draw downs recently experienced.
- Do the new changes not only improve the draw down month but also contribute to all previous months thorough our historical back test?
- As we reverse time and back test over the previous month and several years, if the new changes do not significantly improve the draw down nor add to the overall yearly performance we must start over again.
- If we do find improvements and patterns that improve results, we go through another iterative process fine tuning various parameters as well as testing various time frames (bars) and currency pairs to see if there are any other significant correlations.
- Once we prove to ourselves that the new strategies or changes are worth implementing we have to pick the best time to turn them on.
- If some are already in significant profit, we may choose not to initiate such positions but wait until they close or pull back to price below a point at which the original trade was triggered at.
- Leverage is also a consideration.
It is not until this process is fairly complete that we can provide good answers and news as to what happened, whey and what we are doing about it. A month is about the soonest this process can complete and it could take significantly longer depending on the complexity of what we’re experiencing.
Now with this all said and explained, despite our significant January draw down we have just experience we do have some encouraging news we are preparing to update you with shortly.
Just know that we are constantly evaluating our systems and their performances for the best possible outcome for the sake of our own funds as well as our clients. It just takes a little time to get you the news and details sometimes so please be patience as we try to provide information as timely as we can.
All I have to say is, show me the money! 🙂 Ok, ladies and gentlemen, I’m out of here. Ciao.