Most traders prefer to begin trading when an equity curve is making new highs. At Capstone Trading Systems, we also examine a different possibility: starting after a losing streak or drawdown, when a portfolio has already experienced a decline from its recent peak.

In the video above, we review our NASDAQ futures (NQ) portfolios, examine current drawdown conditions, and demonstrate how the Portfolio Metrics tool helps place those conditions in historical context. The goal is not to predict the precise bottom of a drawdown. It is to evaluate whether a portfolio's current risk profile aligns with a trader's expectations and capital constraints.

Why We Pay Attention to Losing Streaks

Every algorithmic trading strategy experiences losing trades. Even strategies with strong long-term results can have several losses in succession, particularly when market conditions temporarily work against the strategy's methodology.

For example, our Open Range 2026 strategy was experiencing its fifth consecutive losing trade during the October 30 update. That same strategy had recently recorded individual winning trades around $10,000 in October and $9,000 in September, as discussed in the video. This illustrates a central characteristic of strategies designed to cut losses and let larger profits develop: a string of smaller losses may occur between significant winners.

The Three-System NASDAQ Futures Portfolio

Our three-system NQ portfolio combines three distinct trading approaches:

• Gap Continuation: a trend-oriented approach that seeks continuation opportunities.
• V-Reversal: a mean-reversion strategy designed to capture reversal behavior.
• Open Range 2026: an intraday trend strategy that targets specific price patterns around the market open.

At the time of the video, Open Range had experienced a run of losing trades, while V-Reversal had also encountered a difficult stretch. Together, these results placed the combined portfolio in a drawdown-entry alert condition.

The Portfolio Metrics figures shown in the recording were updated through the prior trading day, not intraday. The presenter also discusses approximately $4,000 in additional losses during the session. Those intraday figures are provisional and should not be confused with finalized portfolio results.

How to Evaluate a Portfolio Drawdown

One useful comparison is the current peak-to-trough decline against the portfolio's largest historical peak-to-trough decline. In the video, we use this comparison across multiple portfolios to show that drawdowns—sometimes substantial ones—are a recurring feature of systematic trading.

For the three-system portfolio, the presentation references an approximately $21,135 historical drawdown and discusses how the latest trading session would affect its current drawdown. The relevant question is not simply how far the portfolio has fallen, but whether an investor can withstand a further decline, potentially greater than anything previously observed.

Historical Drawdown Is a Reference, Not a Limit

A portfolio that is halfway through its historical maximum drawdown has not necessarily used up half its future downside risk. The prior maximum is a backward-looking observation, not a stop-loss, guarantee, or upper bound. Market structure can change, correlated strategies can lose simultaneously, and new drawdown records can occur.

Waiting for an entry after a drawdown can reduce exposure during an earlier decline, but it does not establish that a recovery is imminent. Any entry plan should incorporate position sizing, capital reserves, and a predefined response if losses continue.

What Diversification Changes

Portfolio construction matters as much as individual strategy performance. A collection of strategies is not necessarily diversified merely because it contains many components. Their trading methodologies, correlations, and responses to different market regimes determine how they behave together.

Portfolio Metrics: Seeing Drawdowns in Context

Our Portfolio Metrics software can display combined equity curves, periodic returns, and drawdown information. One feature demonstrated in this update is the ability to switch the equity curve's horizontal axis from trade count to calendar time.

A time-based view helps identify when historical drawdowns occurred and makes it easier to compare portfolio behavior across 2025 and 2026. This perspective is useful when evaluating whether recent volatility represents a familiar pattern or a potential shift in market conditions.

Why the Market Environment Still Matters

In late October 2026, the market had exhibited overnight gaps followed by comparatively constrained intraday price movement, as described in the video. Upcoming events—including U.S. midterm elections, major corporate earnings, and the year-end trading period—could bring a different mix of volatility and intraday opportunity.

However, a market catalyst does not guarantee that trend-following or mean-reversion strategies will benefit. The practical approach is to monitor realized results, correlations, and risk rather than assume volatility will automatically create profitable trades.

Should You Start Trading During a Drawdown?

That decision depends on your capital, risk tolerance, and confidence in the strategy's continuing validity. Before starting, consider:

• Whether the current drawdown is consistent with historical behavior and whether the strategy's underlying edge still has a reasonable basis.
• How much further the portfolio could decline if the historical worst case is exceeded.
• Whether multiple strategies might experience losses at the same time.
• Whether the portfolio's required trading capital and position size are suitable for your account.
• Whether your plan calls for continuous trading, entry after a specified drawdown, or another disciplined exposure rule.

One trade-off deserves particular attention: stopping at an equity high and waiting for another drawdown may reduce exposure to some losses, but can also mean missing continued gains. Entry timing should therefore be evaluated as part of a complete, testable trading process—not as an assumption that drawdowns always lead to rebounds.