When do you kill a strategy?

FTC Community TeamStaff17 Sept 202614 views

Every strategy goes through drawdowns that look like death, and traders face the call: is the edge gone or is this normal variance? Kill too early and you abandon a working system; kill too late and you ride it into the ground.

When do you kill a strategy? — drawdown and recovery diagram — An equity curve during a drawdown and its recovery

What's your kill rule?

the drawdown or trade count that triggers review
how you distinguish broken from unlucky
the strategy you kept too long or killed too soon

When do you kill a strategy? — risk-reward diagram — A risk-reward ratio of 1 to 2

The drawdown guide gives the statistics for making the call.

Background: Drawdown and recovery: why a 50% loss needs a 100% gain

Losses and gains aren't symmetrical. See how much you need to recover from a drawdown, what losing streaks do at different risk levels and how to set limits.

How much do you need to gain to recover from a 50% loss?

100%. The gain needed is the loss divided by one minus the loss, so larger drawdowns need disproportionately larger gains.

What is maximum drawdown?

The largest fall in account value from a peak to a later low, before a new peak is reached, usually expressed as a percentage.

Read the full guide

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