All stock trading and investing methods must deal with the inevitable drawdown from the most recent peak in ones stock trading curve to a bottom before reversing and making a new high. Seasoned systems traders are well familiar with the drawdown phenomenon and the importance of drawdown as a percentage of annual average returns in evaluating a trading system. On the other hand, many investors that follow a buy, hold and hope approach to the markets for the long term, dont think in terms of a drawdown when their portfolios drop in value by 10%, 20%75%, as has happened in the past few years. But what they have experienced is an stock trading curve drawdown.

Systems traders know that if they are following a good system that gives them a winning edge, in order to cash in on what that system has to offer, they must have a strong commitment to following each and every trade recommendation, even if the system is currently experiencing a drawdown. They are emotionally and financially prepared to do so because they already know the historical maximum drawdown that the system has incurred before making new stock trading highs. They also know that the worst time to abandon a system is just after a drawdown and just before, it surges to new highs.

Buy, hold, and hope investors, on the other hand, are committed to holding no matter what. But that commitment is misplaced, because buy, hold, and hope is not a winning methodology. Commitment without a good system, or a good system without commitment, is both recipes for failure.

You need two things to win in stock trading. A good system or methodology and the commitment to follow it without fail especially through the inevitable drawdown periods.