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Hi Gary,
Thanks for the clarification. I'm a little clearer. I think...
(:-)
I'm basically just trying to get a handle on DD percentages that many
vendors quote and trying to compare like with like. It doesn't seem to
be easy...
Using the DD from starting equity method, if the account triples or
quadruples in size and achieves the same monetary performance, the DD as
a percentage will get increasingly smaller. Hmm... However, if the
system invests the equity in the same proportion, the percentage will
stay the same. I think that's it.
Okay, off to worry about something else... (:-)
Thanks.
Ian
> > 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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