|
PureBytes Links
Trading Reference Links
|
The drawdown is the maximum account total equity decline, before a new
account equity high is achieved.
Equity & drawdown is generally tracked in terms of VAMI (value of a thousand
dollar investment.) Thus an account is started with a VAMI of 1000. Each
day you calculate the percentage profit/loss & adjust the VAMI. If you
actually start trading with 100,000 & on day 1 you make $5,000, your VAMI at
the end of day 1 would be 1050, calculated as follows:
5000 / 100000(previous day's total equity) x 1000 ( previous
day's vami) = 50
add/subtract result to previous days VAMI: 1000 + 50
The first few days of trading might look as follows:
cashin cashout gain loss total equity
VAMI
100000 100000
1000
day1 5000 105000
1050
day2 2000 107000
1070
day3 -7000 0 0 100000
1070
day3 -7000 93000
995.1
Note in this case even though profit / loss in dollar terms were actually
equal, the account shows an approximate 1/2 % decline, because the $ 7,000
loss took place on total equity of 100,000, rather than 107,000, since the
first 7,000 in profit was withdrawn from the account before the loss.
Keep a daily VAMI, & your return will be based on performance, ignoring
deposits or withdrawals to the account.
The max drawdown is also made obvious: it is the highest VAMI to the lowest
VAMI that occurred after the high. The drawdown period continues until a
new high VAMI is achieved.
Regards,
----- Original Message -----
From: "Anthony" <Anthony3@xxxxxxxxxxxx>
To: <omega-list@xxxxxxxxxx>
Sent: Tuesday, July 18, 2000 10:12 PM
Subject: Drawdown defined
> Hi,
>
> Can someone please tell me what the exact definition of drawdown is?
> I've heard several different definitions of it.
>
> Is it....
>
> 1) The maximum amount your account dips before you make a new equity
> high?
>
> 2) The most you lose in any given number of consecutive losing trades?
>
> 3) Or is it something else?
>
> Thanks all.
>
> --
> Anthony
>
>
>
|