Avoiding Major Drawdowns

[miketoll 10]

Hey,

 

how do you protect against sudden stock-drops of 50% or more (like terror, bankruptcy..)?

It just needs to happen, one day in your trading career and you're busted? Even if diversified over 5 stocks, you may have a destroying drawdown (e.g. 9-11: 40% in United Airlines; other 4 stocks around 10% drop --> 18% drawdown)..

How do you protect against those drops? I don't want to diversify more, in order to be able to outperform the index.

 

-mike

[MightyMouse 12]

Hey,

 

how do you protect against sudden stock-drops of 50% or more (like terror, bankruptcy..)?

It just needs to happen, one day in your trading career and you're busted? Even if diversified over 5 stocks, you may have a destroying drawdown (e.g. 9-11: 40% in United Airlines; other 4 stocks around 10% drop --> 18% drawdown)..

How do you protect against those drops? I don't want to diversify more, in order to be able to outperform the index.

 

-mike

 

It's part of the game. There is no way to hold onto your pants all of the time. Most of the time, sure, but not all of the time.

[miketoll 10]

That's probably the biggest disadvantage to forex: IN forex you know your risk in advance. No gaps that eat up half your account :/