Reducing Drawdown in Momentum Strategies

Hi, I need some ideas for reducing drawdown in momentum strategies. I can break down the problem into 3 questions:

  1. Is a strategy with a good YoY return but 70% drawdown usable?
  2. How do you minimise losses during a quick reversal/crash?
  3. How do you prevent whipsawed during sideway moves?
At the moment, I use volatility and oscillators to handle the above (not very successfully). I am looking at Breakout as well.
Update Backtest

1. Returns can be a useless metric. A 70% drawdown would be very hard to sit through in real life and most everyone would rather use the SPY as an investment so they can sleep at night. Try focusing on sharpe, profit-loss ratio, drawdown, and other risk based metrics that better illustrate risk-adjusted "insights" into the algo's performance.

2. Really depends on the algo; mechanically speaking you can try playing with lower resolution and a relative stop or something for 'faster' reactions, but be wary of overly tight stops which kick you out of positions during volatile periods.

3. Not sure how to avoid this...perhaps position sizing and/or profit taking can be of help to reduce exposure over time.


Update Backtest


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