Farley: Don't Sweat a Drawdown, Learn From It

This was originally published on RealMoney. It is being republished as a bonus for TheStreet.com readers.

It's turning into an exceptionally tough year for long-time traders who usually make money, day in and day out. Of course, the losing bug hasn't infected everyone. It really depends on how your strategy has adapted to this wicked tape, and whether your market vision is clear enough to keep you out of trouble during periods of high risk.

In fact, I know an automated-systems daytrader who's having his best year since 2000 because the Market Volatility Index (VIX) has risen over 20 and stayed there for many months. For him, this twitchy and unpredictable market is offering the ideal environment to execute his fast-fingered strategies.

But it's been a major challenge for position traders who measure holding periods in days and weeks, not minutes and hours. As Doug Kass notes, the 2008 market has no memory. This amnesia is a major drag on profitability when your trading strategy depends on logical price development from session to session. ...