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<FONT color=#000080
size=2>Ken,
<FONT color=#000080
size=2>
You may define DD
anyway you want. What you will get is a DD based on past history.
Each and every trade in the future will be unique and may not correspond to the
historical DD from the past. In other words you never know what is going
to happen.
<FONT color=#000080
size=2>
So rather than
focus on DD, maybe the focus should be on stop loss. Decide ahead of time
what you are willing to risk on each trade.
<FONT color=#000080
size=2>
Just my humble
opinion.
<FONT face="Vladimir Script" color=#000080
size=5>Rick
<FONT face=Tahoma
size=2>-----Original Message-----From: Ken Close
[mailto:closeks@xxxxxxxx]Sent: Thursday, April 03, 2003 10:01
AMTo: AmiBroker ListSubject: [amibroker] FW: Drawdown
from EntryOriginal message seems to have not gotten
thru....sorry if thisduplicates later...need some
comments...Ken-----Original Message-----From: Ken Close
[mailto:closeks@xxxxxxxx] Sent: Thursday, April 03, 2003 9:14 AMTo:
AmiBroker List (amibroker@xxxxxxxxxxxxxxx)Subject: Drawdown from
EntryAll: I have gotten into a private discussion with someone
and I wantedto see your reaction to the concept of DD from entry. We
always citethe MaxDD statistic as being the worse pain we might experience
in anopen trade in the future.It has also been mentioned that
entries are not as significant as exits.If you believe a system is
EXCELLENT in choosing entries, then thepostulate is that drawdown from
starting trade equity is a useful, evennecessary, statistic to gather to
monitor the ongoing success of asystem.Note that I am not talking
about drawdown from absolute starting accountequity, but drawdown of the
trade equity committed to the trade. If thesystem catches trends
(agree that these have been less consistentrecently), then the DD from
starting trade equity is and will be quitelow, or at least it should be if
the system delivers such performance.Further, this parameter assumes a
differentiation in psychology: to wit:equity drawdowns from levels that
represent positive returns are lessimpactful on psyche that "going
underwater", ie, having absolutedrawdowns from entry (out of pocket paper
losses). If I gain 25% on aposition and it retraces 50%, then I have
a Maxdd on the trade of 50%,but I am still ahead 12.5% in terms of my
entry. Doesn't this affect medifferently than having a 10% drawdown
right from the beginning of thetrade? Sure it does.I would
appreciate some comments on this way of looking at a
systemcharacterization.Thanks,KenSend
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