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I know this subject appears from time to time but I'd appreciate
comments on the following:
I understood that DD was the lowest dip in equity following an equity
high. So if a system reached, say 1925, fell back to 550 and then rose
to 2100 the DD for that period would be 1375 (1925-550). In percentage
terms I view that as a 71% drop - 1375/1925*100.
I've been talking to someone who calculates it by taking the account
requirement, say $10,000, finding the equity high and subtracting the
equity low, and then dividing the difference by the account requirement.
That would give you 1925-550=1375/10,000*100 = 14%. Is this a standard
method of DD calculation?
It seems to me that you could claim the DD in the above calculation was
only half that by saying you need an account size of $20K. Or let's
start with an account size of $50K so the DD would only be 2.75%.
So, if two systems had exactly the same performance but one had twice
the starting capital requirement of the other, it's DD would be half.
I'm puzzled. Comments appreciated.
Ian
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