November was another break even month for our track record account at Zone Capital. Our high frequency mean reversion systems continue to underperform which in turn lowered our leverage and risk per trade considerably during the month.
Although we are marginally profitable for the year, our current drawdown is now 10 months in length, which is frustrating for both our clients and ourselves. However it is worth noting that the depth of the drawdown at 3.5% is fairly modest. This sort of pattern in our returns is consistent with our risk management philosophy and probably worthy of restating.
As managers we design our entire risk management algorithms around a few key principles. Firstly, we wish to attain the highest probability of a profitable month without limiting our overall upside every month. Secondly, we believe drawdowns that eat into large monthly profits to be less important than drawdowns at the start of a month that eat into capital. Thirdly, we prefer to have shallow, longer drawdowns than deep shorter drawdowns and, lastly, we “rule off” our trading at the end of every month and start afresh. Each month is a new month with a set amount of capital to be protected and from which we must generate our profits.
We believe that despite the drawdown, our risk management philosophy has been followed consistently and has put our clients in the best possibly position to profit when the systems return to profitability.
