|
PureBytes Links
Trading Reference Links
|
TS reports Maximum Drawdown based on closed trade equity only and the
reports do not track the mark-to-market (MTM) movement of the trade P/L
during the life of the trade. Because TS does not track the MTM P/L of a
trade, it effectively produces max draw results that are smaller than your
MTM Maximum Drawdown of your trading system. This is where most young
players get unstuck with the reporting from TS. To this day, I am shocked
why TS has not been able to improve the reporting on this. It would not be
difficult to fix this in TS. Relying on the TS Max Drawdown is a great way
for young players to get dusted.
SOLUTION:
=========
Some solutions are quick and dirty while others are complex. Bottom line,
if you use TS, you need to generate or track your equity curve at every bar
which captures the P/L movement during the life of your trade. Pump this
out to an ascii file. With this data, you can then calculate the true
maximum drawdown of your trading system. Convert the $ movements to %
returns if you want to estimate this more accurately.You can then run a
Monte Carlo Simulation (ala bootstrap) on the movement of the equity curve
at every time period (whether it is 5 min, hourly, daily etc). Be careful
though, depending on the quality of your trading system, your max draw may
blow out substantially compared to the TS max draw. Make sure you are
sitting down when you analyse your results and drink lots of water. At
this stage at least, you are getting closer to your true future expectation
of your RISK.
The next stage would be to improve the bootstrap so it generates a more
accurate simulation of your P/L to account for the small autocorrelation in
your trade P/L..............
Rob Bianchi
r.bianchi@xxxxxxxxx
===============
|