Optimal investment strategies for controlling drawdowns

Grossman, S. J., & Zhou, Z. (1993). Mathematical Finance, 3(3). Peer-reviewed article.

Derives the optimal risky policy for an investor who will not accept losing more than a fixed percentage of the highest wealth already reached. The drawdown constraint changes the whole policy, and the constraint is paid for in expected return.

Why it is here A maximum-drawdown rule is the same kind of constraint: a limit measured from a high-water mark. The desk reproduces that arithmetic for one account, static or trailing, and shows the buffer left above the floor.

Limit Continuous-time model with constant parameters. It does not model a firm rule set, a fee, or a session boundary.

doi.org/10.1111/j.1467-9965.1993.tb00044.x

Reaching goals by a deadline: digital options and continuous-time active portfolio management

Browne, S. (1999). Advances in Applied Probability, 31(2). Peer-reviewed article.

The policy that maximises the probability of reaching a target by a fixed date is not the growth-optimal policy. Goal-reaching problems have their own solution, and a deadline changes both the policy and the attainable probability.

Why it is here Evaluations combine a target with a time limit. The desk does not estimate a probability of reaching the target, because that figure would rest on assumptions a set of records cannot supply.

doi.org/10.1239/aap/1029955147

Drawdown measure in portfolio optimization

Chekhlov, A., Uryasev, S., & Zabarankin, M. (2005). International Journal of Theoretical and Applied Finance, 8(1). Peer-reviewed article.

Proposes a one-parameter family of drawdown risk measures and shows that drawdown constraints reshape the optimal portfolio. How heavily the worst stretches of the underwater curve are weighted is an explicit choice, not a given.

Why it is here Static drawdown and trailing drawdown answer different questions about the same account. The desk labels which method a profile uses and does not blend the two.

doi.org/10.1142/S0219024905002767

A new interpretation of information rate

Kelly, J. L. (1956). Bell System Technical Journal, 35(4). Peer-reviewed article.

Shows that a bettor with an informational advantage can grow capital exponentially, at a maximum rate equal to the rate of information transmission, and that this rate depends on the stake taken.

Why it is here The desk measures the risk each recorded trade carries against the configured loss allowance. It does not size a trade, and it does not know the trader’s advantage.

doi.org/10.1002/j.1538-7305.1956.tb03809.x

The Kelly criterion in blackjack, sports betting, and the stock market

Thorp, E. O. (2006). Handbook of Asset and Liability Management (book chapter). Book chapter.

A handbook chapter restating the growth-optimal staking result across blackjack, sports betting and the stock market: the practitioner-facing statement of the mathematics in the 1956 paper.

Why it is here Included because the betting literature is where the arithmetic of stake size against a finite bankroll was worked out, and because the inputs to any staking rule are estimates.

doi.org/10.1016/s1872-0978(06)01009-x

Trading is hazardous to your wealth: the common stock investment performance of individual investors

Barber, B. M., & Odean, T. (2000). The Journal of Finance, 55(2). Peer-reviewed article.

Across 66,465 households at a large discount broker from 1991 to 1996, the most active traders earned 11.4 percent a year while the market returned 17.9 percent. The authors attribute high trading levels and the resulting drag to overconfidence.

Why it is here The likely cost of activity is why the desk records daily totals and trade outcomes instead of counting trades as progress.

doi.org/10.1111/0022-1082.00226

Just how much do individual investors lose by trading?

Barber, B. M., Lee, Y.-T., Liu, Y.-J., & Odean, T. (2008). The Review of Financial Studies, 22(2). Peer-reviewed article.

Using the complete trading history of all investors in Taiwan, the aggregate portfolio of individuals gave up 3.8 percentage points a year, equivalent to 2.2 percent of GDP, and virtually all of the loss traces to aggressive orders. Institutions gained about 1.5 percentage points.

Why it is here The asymmetry between order types is the part a journal can capture: whether the entry was patient or impatient is a field a trader can record about their own trades.

doi.org/10.1093/rfs/hhn046

The cross-section of speculator skill: evidence from day trading

Barber, B. M., Lee, Y.-T., Liu, Y.-J., & Odean, T. (2014). Journal of Financial Markets, 18. Peer-reviewed article.

Examines the cross-section of day-trader performance and how much of it persists, in a market where every trade by every trader is observable.

Why it is here Persistence is the question a journal exists to answer: whether the same trader repeats the same result, not whether one session went well.

doi.org/10.1016/j.finmar.2013.05.006

Day trading for a living?

Chague, F., De-Losso, R., & Giovannetti, B. (2019). SSRN working paper 3423101. Working paper.

Observing every individual who began day trading Brazilian equity futures between 2013 and 2015, the authors report that 97 percent of those who persisted for more than 300 days lost money. Only 1.1 percent earned more than the Brazilian minimum wage and 0.5 percent earned more than a bank teller’s starting salary, all with great risk.

Why it is here Persistence and profitability are separate measurements. The desk keeps them separate: a daily total is not a record of skill, and a long record is not evidence of an advantage.

Limit Working paper, not peer reviewed; one market and one period.

doi.org/10.2139/ssrn.3423101

Learning by trading

Seru, A., Shumway, T., & Stoffman, N. (2009). The Review of Financial Studies, 23(2). Peer-reviewed article.

With nine years of individual records, some investors improve with experience while others stop after learning that their ability is poor. Attrition explains a substantial part of the improvement, so studies that ignore it overstate how quickly traders get better.

Why it is here Two kinds of learning are visible only in a record: the trades that improved, and the decision to stop. The desk stores both an account history and a manual journal, and the export exists so the record outlives the browser.

doi.org/10.1093/rfs/hhp060

Prospect theory: an analysis of decision under risk

Kahneman, D., & Tversky, A. (1979). Econometrica, 47(2). Peer-reviewed article.

Choices under risk depart from expected utility in systematic ways: outcomes are evaluated against a reference point, losses weigh more heavily than equivalent gains, and merely probable outcomes are underweighted relative to certain ones.

Why it is here A loss limit turns an unrealised loss into a reference point. The desk stores the day’s total as one number so it can be read against the allowance rather than against the morning’s high.

doi.org/10.2307/1914185

The disposition to sell winners too early and ride losers too long: theory and evidence

Shefrin, H., & Statman, M. (1985). The Journal of Finance, 40(3). Peer-reviewed article.

Places loss aversion, mental accounting, regret aversion and self-control into one framework that predicts a general disposition to realise gains and defer losses.

Why it is here The disposition effect is measurable in a journal: the entry price, the planned stop and the outcome label for each completed trade make the pattern visible in a trader’s own records.

doi.org/10.1111/j.1540-6261.1985.tb05002.x

Are investors reluctant to realize their losses?

Odean, T. (1998). The Journal of Finance, 53(5). Peer-reviewed article.

Across 10,000 accounts at a large discount brokerage, investors showed a strong preference for realising winners rather than losers. The pattern was not explained by rebalancing, by the higher costs of low-priced stocks, or by subsequent performance.

Why it is here This is why the desk asks for a planned stop and a planned target at the point of the journal entry, before the outcome is known.

doi.org/10.1111/0022-1082.00072

Professional trader discipline and trade disposition

Locke, P. R., & Mann, S. C. (2005). Journal of Financial Economics, 77(2). Peer-reviewed article.

Studies the trade-by-trade records of professional futures floor traders and relates how they dispose of winners and losers to what they earn.

Why it is here It is the closest published analogue to an evaluation record: professional traders inside a firm’s limits, with every trade observed.

doi.org/10.1016/j.jfineco.2004.01.004

Do behavioral biases affect prices?

Coval, J. D., & Shumway, T. (2005). The Journal of Finance, 60(1). Peer-reviewed article.

Chicago Board of Trade proprietary traders were highly loss-averse and regularly assumed above-average afternoon risk to recover morning losses, buying contracts at higher prices and selling at lower prices than had prevailed. The prices they set were reversed more quickly than those of other traders.

Why it is here This is the daily-loss rule measured from the inside: the losing morning, then the larger afternoon position taken to repair it. The desk treats one day’s total as a single figure precisely because the second half of that day is where the limit is usually touched.

doi.org/10.1111/j.1540-6261.2005.00723.x

Gambling with the house money and trying to break even: the effects of prior outcomes on risky choice

Thaler, R. H., & Johnson, E. J. (1990). Management Science, 36(6). Peer-reviewed article.

Risk taking depends on what came before: a prior gain is framed as house money and a prior loss is framed as an attempt to break even, and both framings change the risk a person will accept on the current decision.

Why it is here Both framings apply to the day after a large result. The desk compares a balance with the configured floor rather than with the previous session’s outcome, and records the day’s total separately from the trade journal.

doi.org/10.1287/mnsc.36.6.643

Up close and personal: investor sophistication and the disposition effect

Dhar, R., & Zhu, N. (2006). Management Science, 52(5). Peer-reviewed article.

Individual-level records show that investor sophistication accounts for much of the variation in the disposition effect, so an average across all investors hides wide differences between them.

Why it is here A group average is not a personal record. Everything the desk reports is derived from the figures entered for one account.

doi.org/10.1287/mnsc.1040.0473

Do investor sophistication and trading experience eliminate behavioral biases in financial markets?

Feng, L., & Seasholes, M. S. (2005). Review of Finance, 9(3). Peer-reviewed article.

Sophistication and trading experience together removed the reluctance to realise losses in a large brokerage sample, and the authors report an asymmetry in how the two act on the propensity to realise gains.

Why it is here Experience is a variable the desk cannot measure from an account state. It records the incidents, which is all a journal can honestly do.

doi.org/10.1007/s10679-005-2262-0

Who gambles in the stock market?

Kumar, A. (2009). The Journal of Finance, 64(4). Peer-reviewed article.

The propensity to gamble and investment decisions are correlated. Individual investors prefer lottery-type stocks, demand for them rises during economic downturns, and the socioeconomic factors that predict lottery spending also predict lottery-type investment.

Why it is here An evaluation fee buys a chance at a large account. The desk never presents a payout figure, a probability of passing, or a projected return, because those are the numbers that convert a risk exercise into a lottery ticket.

doi.org/10.1111/j.1540-6261.2009.01483.x

Why do (some) households trade so much?

Linnainmaa, J. T. (2011). The Review of Financial Studies, 24(5). Peer-reviewed article.

When investors can learn about their ability by trading, trading to learn is rational even for someone who expects to lose on active investing. The model matches observed behaviour: underperformance, small initial stakes, and trading intensity that depends on past results.

Why it is here Evaluations are repeated for a reason. The cost of learning this way is paid in fees and in failed attempts, and the record of those attempts is the only part the trader keeps.

doi.org/10.1093/rfs/hhr009

The hot hand in basketball: on the misperception of random sequences

Gilovich, T., Vallone, R., & Tversky, A. (1985). Cognitive Psychology, 17(3). Peer-reviewed article.

Documents a widely held belief that a player is on a streak and shows that the belief is a misperception of random sequences, in data where the sequences were measurably random.

Why it is here Losing runs are the routine output of a random process with a small negative or positive mean. The desk reports counts and totals, not streaks and momentum, because a run of results is not evidence about the next one.

doi.org/10.1016/0010-0285(85)90010-6

Of tournaments and temptations: an analysis of managerial incentives in the mutual fund industry

Brown, K. C., Harlow, W. V., & Starks, L. T. (1996). The Journal of Finance, 51(1). Peer-reviewed article.

Among 334 growth-oriented mutual funds from 1976 to 1991, mid-year losers increased fund volatility in the later part of the year relative to mid-year winners, consistent with tournament behaviour under relative-performance incentives.

Why it is here A threshold that separates pass from fail creates the same asymmetry. The desk reports the buffer remaining and the loss incurred, and never a ranking against other traders.

doi.org/10.1111/j.1540-6261.1996.tb05203.x

Risk taking by mutual funds as a response to incentives

Chevalier, J., & Ellison, G. (1997). Journal of Political Economy, 105(6). Peer-reviewed article.

Fund flows respond asymmetrically to past performance, which gives managers an incentive to take actions that increase inflows. The incentive, rather than the investor’s interest, shapes the risk that is taken.

Why it is here Whoever prices a fee has an incentive. The desk states plainly that it is educational software: it does not assess a firm, recommend one, or take a position in a trader’s outcome.

doi.org/10.1086/516389

The process of becoming a digital labor of retail traders on the forex proprietary firms’ trading platform

Ketmanee, N. (2026). Kasetsart Journal of Social Sciences, 47(3). Peer-reviewed article.

A sociology-of-finance study of Thai retail traders on forex prop firm platforms, describing how they describe themselves as becoming professional traders and what attaches to a contract after a passed evaluation.

Why it is here Useful for the same reason a contract is: it describes what the arrangement is from the trader’s side, in the trader’s own terms, without asserting anything about outcomes.

Limit Qualitative work in one national setting. It is not an outcome study and reports no pass or payout rate.

doi.org/10.34044/j.kjss.2026.47.3.23

Implementation intentions: strong effects of simple plans

Gollwitzer, P. M. (1999). American Psychologist, 54(7). Review article.

Translating goals into action improves when a person forms an implementation intention that links a specific anticipated situation to a specific response, in the form of an if-then plan rather than a general intention.

Why it is here The desk asks for the limits to be configured before a session and for the day’s total to be entered after it. Written down in advance is the practical form of that pattern; the software stores what is typed and enforces nothing.

doi.org/10.1037/0003-066X.54.7.493

Tying Odysseus to the mast: evidence from a commitment savings product in the Philippines

Ashraf, N., Karlan, D., & Yin, W. (2006). The Quarterly Journal of Economics, 121(2). Peer-reviewed article.

A savings product that restricted the depositor’s own access to their money raised savings in a randomised evaluation, evidence that a pre-commitment device changes behaviour rather than intentions.

Why it is here A daily loss allowance is a pre-commitment device written into a contract. The desk makes the allowance visible at the point of decision; it cannot stop a trade.

doi.org/10.1162/qjec.2006.121.2.635

Debiasing the mind through meditation

Hafenbrack, A. C., Kinias, Z., & Barsade, S. G. (2013). Psychological Science, 25(2). Peer-reviewed article.

Across four studies, increased mindfulness reduced the tendency to let unrecoverable prior costs influence current decisions, the pattern known as the sunk-cost bias.

Why it is here The sunk-cost bias is what keeps an open position open because it is already losing. The desk records planned and executed levels separately so the review happens after the decision, not during it.

doi.org/10.1177/0956797613503853

Decision making under stress: a selective review

Starcke, K., & Brand, M. (2012). Neuroscience & Biobehavioral Reviews, 36(4). Review article.

Reviews the experimental and field evidence on how acute stress changes decision making.

Why it is here The stress is structural in an evaluation: a limit plus a deadline plus a fee already paid. It is an input to the conditions of the session, which the desk can describe, not a result it can compensate for.

doi.org/10.1016/j.neubiorev.2012.02.003

Impaired decision making following 49 h of sleep deprivation

Killgore, W. D. S., Balkin, T. J., & Wesensten, N. J. (2006). Journal of Sleep Research, 15(1). Peer-reviewed article.

After two nights without sleep, participants’ decision making on a task designed to model real-world decisions under uncertainty was impaired relative to controls, with the authors linking the effect to reduced prefrontal function.

Why it is here Sleep is a controllable input. The desk does not record it, and its absence is a gap a trader can close by keeping their own record alongside the account.

doi.org/10.1111/j.1365-2869.2006.00487.x

The psychophysiology of real-time financial risk processing

Lo, A. W., & Repin, D. V. (2002). Journal of Cognitive Neuroscience, 14(3). Peer-reviewed article.

In a sample of 10 professional traders trading live, transient market events produced statistically significant changes in electrodermal and cardiovascular measures relative to no-event control periods.

Why it is here Risk processing has a measurable physiological component in professionals. That is an argument for recording decisions outside the moment, which is what a journal is for.

Limit Ten traders. Suggestive about mechanism, not evidence about performance.

doi.org/10.1162/089892902317361877

The role of deliberate practice in the acquisition of expert performance

Ericsson, K. A., Krampe, R. T., & Tesch-Römer, C. (1993). Psychological Review, 100(3). Peer-reviewed article.

Expert performance is explained as the product of prolonged deliberate practice, effortful activity designed to improve specific aspects of performance, rather than of time on task or innate talent alone.

Why it is here Review that changes something specific is the difference between repetition and practice. This is the purpose the journal and the export serve: a record that can be read afterwards and acted on.

doi.org/10.1037/0033-295X.100.3.363

Time series momentum

Moskowitz, T. J., Ooi, Y. H., & Pedersen, L. H. (2012). Journal of Financial Economics, 104(2). Peer-reviewed article.

Documents significant time series momentum in 58 liquid futures across equity indices, currencies, commodities and bonds, with return persistence at horizons of one to twelve months that partially reverses over longer ones.

Why it is here A documented tendency is not a rule about the next session. The desk describes conditions and classifies nothing as a trade.

doi.org/10.1016/j.jfineco.2011.11.003

Market intraday momentum

Gao, L., Han, Y., Li, S. Z., & Zhou, G. (2018). Journal of Financial Economics, 129(2). Peer-reviewed article.

Documents intraday momentum in the US equity market: a relationship between how the session opens and how it finishes.

Why it is here The study is about an index, over a sample period, with costs excluded. The desk publishes readings of the current session and never converts one into an instruction.

doi.org/10.1016/j.jfineco.2018.05.009

Momentum crashes

Daniel, K., & Moskowitz, T. J. (2016). Journal of Financial Economics, 122(2). Peer-reviewed article.

Examines the infrequent but severe crashes of momentum strategies and the conditions under which they occur.

Why it is here The crash is the event a drawdown rule is built for: rare, large, and outside the range of the recent sample. The desk shows the buffer to the floor so the exposure is visible before the event, not after.

doi.org/10.1016/j.jfineco.2015.12.002