After the Storm Hits the Ship

Drawdown = the period when the portfolio falls from its previous peak.

Every system has drawdown — even the Renaissance Medallion fund (39%/year for 35 years — the best in world history) has had years with a -10% drawdown.

But a trader's real failure does not come from the drawdown — it comes from what the trader does after hitting one.

Let me tell another story — my friend "Keng" (not the same as Uncle Keng — a different person).

Keng has traded 4 years, the system works well, average profit 18%/year. One day he hit a losing streak of 6 trades, losing -7% of the portfolio within a week.

Instead of "stopping and reviewing" like Uncle Keng — Keng did the opposite.

Day 8: "I have to get it back today" → opened a position 3x normal → wrong → lost another -3%.

Day 9: "I have to get it back tonight!" → opened a position 5x normal + 1:200 leverage → wrong again → lost -8%.

Day 10: Keng called to borrow money from me "to recover with one trade."

Within 10 days, Keng was down -30% from the portfolio — from an initial drawdown of -7% that was perfectly normal.

This is Revenge Trading, or in psychology, "Tilt" (a poker term).

What is Tilt? The state where emotion overrides reason after a loss that hits the ego. Professional poker players know tilt well — they will sit out of the game the moment they feel it, because playing on loses more than Keng did.

3 emotions that destroy the portfolio after a losing streak:

1) Revenge Trading — per Keng's case 2) Long-term Tilt — hating the market, seeing every setup through a negative lens → missing good trades + entering off-system trades 3) Position Size Inflation — "if I go bigger, when I am right I recover faster!" → destroys risk management

What pros do after a drawdown — a 5-step protocol:

Step 1: Close the chart immediately — do not keep staring at price, do not look at opening a new trade.

Step 2: Review the journal (the next day, not today) — did the losing trades follow the system? If yes → normal variance, carry on. If no → identify the mistake pattern (FOMO? wrong timing? size too big?).

Step 3: Wait 24-72 hours — go for a walk, exercise, be with family. The brain needs time to reset.

Step 4: Come back at 50% smaller size — not back to trading as before; half size, until you are back to breakeven from the drawdown point.

Step 5: Gradually return to normal size — after breakeven, return to normal size slowly.

The golden rule: never increase position size after a losing streak — decreasing it is better. After a streak your confidence in reading trades is lower — reducing risk reduces the damage if wrong, and buys time to regain confidence.

Renaissance Medallion uses the same rule — every time the fund hits a -5% drawdown it automatically cuts position size across the whole fund by 50%, until back to breakeven. This is why they are the richest in history — not because they predict direction well, but because they protect capital on the days they are wrong.