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If you measure the DD in % and you design a robust trading strategy you
maximum drawdown simply shouldn´t be broken during the first time of real
time trading.
Sure, the more time you spend in the market the chances grow that your maxDD
will one day be broken. But if you designed a goog strategy this should
happen in times when this drawdown won´t hurt you.
Despite all that: One should watch his strategy druing real time trading
very carefully and compare the trades with the historical ones. Are they
similar? Then everything is ok. If they´re not one should ask if the
strategy still manages to catch the right moves or market behaviour changed.
I think these changes should be some time before the big drawdown starts.
I´m very interested in your opinions,
Daniel
----- Original Message -----
From: "Niklas Andersson" <niklas.andersson@xxxxxxx>
To: <omega-list@xxxxxxxxxx>
Sent: Wednesday, April 30, 2003 12:10 AM
Subject: RE: when a strategy breaks the max drawdown
> In my opinion, the right way to measure DD is the way Daniel described it
(or Tomas Stridsman) but I dont think the question about "what to do ..." if
the DD breaks the measured Max DD have been answered totally.
>
> I had planned to bring this question up on the list because I have thought
about it so it would be interesting to hear from more peoples.
>
> Regards
>
> _______________________________________________
>
> Hi Todd,
>
> in my opinion is the way you describe the Drawdown totally wrong.
> You shouldnt give the Strategy Report in TS any value because it just
tells
> you the $ amount of the drawdown- not when and where ist happend....
> You should learn to think in terms of % rather than in terms of $.
> Let me give you an example:
>
> Lets say you bought a stock at 100$. You sell it at 90$. So your drawdown
is
> after this trade 10$ or 10%.
> The next time you buy that stock is at 200$. This time you sell is at
190$.
> So you drawdown is again 10$. But the main and most important difference:
> this drawdown was only 5%- half the drawdown when the stock traded at
100$.
>
> So, when you test a strategy the $ amount of drawdown is useless beause it
> doesnt tell you when and where ist happend.
>
> Best wishes from Bayreuth,
>
> Daniel
>
>
>
> ----- Original Message -----
> From: "Todd Hoff" <gatrboots@xxxxxxxxx>
> To: "Omega forum posting" <omega-list@xxxxxxxxxx>
> Sent: Monday, April 28, 2003 12:44 PM
> Subject: when a strategy breaks the max drawdown
>
>
> > Hello Everyone,
> >
> > I could really use everyone's thoughts on this topic
> > which always seems to happen to me. Sorry if this
> > topic has already been discussed:
> >
> > In your opinion, when or by how much do you
> > realistically stop trading your strategy when it
> > breaks the max historical drawdown?
> >
> > For example. Let's say, that I back-tested my strategy
> > for the last 5 years and the max historical drawdown
> > on this e mini sp system on a 1 contract basis was
> > $3,000. I was once told that we should give it some
> > leeway when ,in real time trading, it approaches the
> > max drawdown. Someone told me once to give it 20%. So
> > in this example, we would stop trading the strategy
> > when it reached $3,600. Others have told me give it
> > 50%.
> >
> > I don't know if it is just murphey's law or just some
> > not so great systems, but every system that I have
> > traded, always breaks the max drawdown substantially
> > and it usually falls apart after trading it real time.
> > It seems that we just never know how much to allow
> > the system to exceed the max drawdown.
> >
> > Sometimes I have stopped trading a system too early ,
> > when it barely broke the max dd and then recovered and
> > other times, I might have given it even too much
> > leeway when it broke the max dd, since it continued
> > drawing down even after stopping it.
> >
> > Your input will be very welcome and helpful to me.
> >
> > Thanks,
> >
> > Todd Hoff
> >
>
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