Why do you want to prevent drawdowns?
Here are some of the main reasons:
Capital Conservation: Portfolio value decreases when there is a drawdown in the portfolio. This can be especially problematic for investors who rely on their portfolio for income or have short investment horizons. Preventing drawdowns helps protect capital and avoid hard-to-recover losses.
Reducing Emotional Stress: Drawdowns can be emotionally challenging for investors. Investors may feel anxious, stressed, or panic when their portfolio loses value. Preventing drawdowns reduces emotional stress and helps investors stick to long-term investment strategies.
Mitigating the Impact of Sequence Risk: Sequence risk is the risk that investors will experience a lower return on investment early in their retirement, which can have a significant impact on their ability to fund their retirement lifestyle. . Preventing drawdowns helps investors mitigate the impact of sequence risk and ensure a more predictable retirement income stream.
Improved long-term returns: When a portfolio experiences drawdowns, it can take a significant amount of time to recover. By preventing drawdowns, investors can avoid long-term slump and enhance long-term returns.
Since the global financial crisis of 2008, the stock market has experienced many major crashes. Notably, in the last decade he has had four major market crashes: Fall 2008, August 24, 2015, February 5, 2018, and March 2020. The recovery period is important for investors trying to effectively manage their portfolios.
recent market crash
The 2008 market crash was one of the most severe market crashes in history, and it took several years for the market to fully recover. The crash he started in October 2007 and lasted nearly 18 months until March 2009. However, it took longer for the market to hit new highs. In fact, it wasn’t until March 2013, after more than five years, that the market surpassed pre-crash levels.
The August 24, 2015 crash was driven by concerns about slowing growth in China, and it took the market nearly a year to fully recover. The crash he started in July 2015 and lasted for nearly a year until June 2016. During this time, the market experienced significant volatility and uncertainty as investors dealt with the impact of China’s economic slowdown.
The crash of February 5, 2018, caused by rising interest rates and fears of inflation, took the market about seven months to hit new highs. The crash he started in late January 2018 and lasted until late August 2018, lasting nearly seven months. During this time, the market experienced significant volatility as investors considered the potential impact of rising interest rates on corporate profits and economic growth.
Finally, the March 2020 crash was caused by the outbreak of the COVID-19 pandemic, and it took the market about seven months to hit new all-time highs. The crash he started in mid-February and lasted until mid-August, lasting nearly seven months. During this time, markets have experienced significant volatility as investors deal with the impact of the pandemic on the global economy and corporate profits.
One of the biggest challenges facing investors is recovering from drawdowns after market crashes. If an investor experiences his 50% drawdown, he needs to get a 100% return to break even. This difficult climb can take years and can have a significant impact on the growth potential of a portfolio.
As an investor, I understand the difficulty of recovering from a drawdown after a market crash. It can take years to get back up and your money is not working for you during that time. We believe that it is important to keep
How to hedge your portfolio
While looking for ways to minimize drawdowns and recover faster from market crashes, we discovered advanced options trading methods such as the Synthetic Dragon and Premier Level 5 systems. These systems are pulled down in the first stages of a crash by negative vega and concavity, but have built-in hedging and single-ticket order structures to prevent further risk.
Since 2018, I have implemented a single ticket ordering approach and aggressive hedging options trading structure to minimize recovery time after market crashes. Backtesting in 2008 showed no drawdowns, and in August 2015 and February 5, 2018, the system was back in 1 or 2 days. Backtesting during the 2020 market crash showed a drawdown of around -15%, but was able to recover within 2-3 weeks.
However, I experienced a larger drawdown (-33%) on my real account. This is because we implemented a large risk-on trading style which we later changed to our current backtested campaign style trading system. Despite this setback, he made a profit of over $100,000 on his real account in March 2020, but it took several months to return to like the market. I attribute this success, at least in part, to my single ticket order positions and proactive hedging.
In conclusion, preventing portfolio drawdowns is very important for investors for several reasons. Helps preserve capital, reduce emotional stress, reduce the impact of sequence his risk, and increase long-term returns. The past decade has seen several significant market crashes, and recovery from drawdowns can take years, negatively impacting portfolio growth. As an investor, I discovered advanced options trading methods such as Synthetic Dragon and the Premier Level 5 system. This helps prevent further risk during market crashes. By utilizing single ticket order positions and proactive hedging to minimize drawdowns, we were able to recover quickly and achieve strong returns. These methods are valuable tools for investors looking for long-term portfolio growth.
About the author: Karl Domm’s 29+ years of experience in options trading demonstrates a proven ability to trade for a living. His journey started as a retailer, which he finally achieved after struggling for 23 years.
Achieved consistent profitability in 2017 through a proprietary options-only portfolio with quantitative trading strategies.
After building a solid trading track record, he accepted outside investors. His book, A Portfolio for All Markets, focuses on options and his portfolio investments. He earned his bachelor’s degree from Fresno State University and currently lives in Clovis, California.you can follow him on youtube and visit his website real pl for more insight.