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> Just to clarify this point, the drop we were talking about didn't
> happen in just one trade but during several trades during the life of
> the system so I would have said that the *system* showed
> such-and-such (71%) a DD.
Ah, my mistake. But still, computing a drawdown only makes sense
if you have a sensible amount to draw down FROM. You don't just
use the cumulative profits of the system, starting from zero,
which it appears you're doing. If you did that, what if the
system took one trade and lost $1? It's down $1 from $0. Is
that an infinite drawdown, or...??
> We could multiply them by 10 so let's say we start with a $10K
> account, get up to $19.25K and then fall back to $5.5K. That would
> still give the same percentage drop making the "account" 71% down by
> my figures but 14% by his. Is this right?
OK, now you're starting with a $10k account. Before you didn't
say anything about a starting amount so I assumed you were
talking only about the system's profits. If you actually start
with $10k, and the system showed 10*$1925 profit, then you're up
to $29.25k, right? Then you drop down to 10*$550 profit, which
takes you down to $15.50k. I'd call that a 47% drawdown -- from
$29.25k to $15.50.
> Whatever the size of your account, you're still losing $X. Saying the
> DD is 14% makes it sounds reasonable but we're really talking about a
> $13.75K drop and that's a lot whether on a $10K or $20K account.
A $13k.75k drop is a lot bigger deal for a $10k account, wouldn't
you say? You're busted and you have a $3750 margin call.
Whereas someone with a $100k account would hardly notice it.
"losing $X" and "Y% drawdown" are two totally different concepts.
They are not interchangeable. It's like going on a diet and
saying "I've lost 10 lbs!" OK, that's good. But if you were
10lbs overweight, losing 10lbs is a lot more impressive than if
you were 200lbs overweight. A 10lb loss to a 350lb person is a
smaller relative amount. If a 150lb person and a 350lb person
both said they lost 10lbs, would you consider that the same level
of accomplishment? Probably not. Similarly, a $10k DD on a
$150k account is not the same as a $10k DD on a $350k account.
> So when system vendors quote a certain percentage DD, they're doing
> it your way, is that right?
Hard telling. System vendors say all kinds of things. Ask them
and find out for sure.
Gary
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