The Workshop · lesson 1
Same return. You would have kept one and quit the other.
Here are two strategies. Both averaged 12% a year for eight years. Both ended up in the same place. Look at them for ten seconds and decide which one you would have held all the way through.
Most people pick A, and they're right — but not for the reason they think. A and B have the same average return. What differs is the size of the swing on the way: A moved about 0.7% on a typical day, B about 1.8%. B's worst fall from a high was ; A's was .
That fall is the number that decides. A strategy is not the return it prints on a brochure; it is the return you are still holding when it comes. Almost nobody sits through a 40% drawdown in something they chose, and the ones who sell at the bottom collect a very different 12% from the one on the brochure.
The arithmetic is unfair on purpose. Lose 10% and you need 11% to get back. Lose 30% and you need 43%. Lose 50% and you need to double. Slide it:
Fact. The S&P 500 fell 51% from October 2007 to March 2009 and needed until March 2013 to make a new high on price — five and a half years underwater. In 2022 it fell 25% and took about two years. Those are the index; individual stocks routinely lose 60–80% and never come back.
Every number on the desk is shown with its bad side. A trade line carries the average outcome and the worst one-in-twenty; the two books show P&L and the worst drawdown; the engine page shows the year the rules lost. If you only ever see a strategy's return, you are being sold its path.
Keep this: the return you collect is the return you can hold. Ask for the drawdown before the return.
The Workshop is education, not advice. Replayed numbers are averages over many trades, after costs unless stated, and are not forecasts; the live record is on the engine page. Open the deskManualEngineChangelog