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drawdown



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Previous message distorted the columns below; hopefully this will correct
that.
**********************

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first 7,000 in profit was withdrawn from the account before the loss.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
>
>
>