My old trading desk required 10:1 ($10 annual return for each dollar of max. drawdown). If you look at CTA and hedge fund rankings the better ones are between 3:1 and 6:1.
I typically like a maxdd of less than twenty percent of equity allocation per position size. That, sharpe ratio and profit factor are major contributors to a system's viability, among others. I also think a lower win percentage is mutually inclusive with longer dd's.
The point at which your skin starts to tingle, you get light-headed, you break out into a sweat, the screen begins to swim in front of your eyes, and you begin to feel as though you're going to throw up. --Db
This applies to U.S. stocks. Japanese stocks yield zero % for the last 20 years. Beside return and max DD, another figure is important - the length of the flat period. Acceptable Max DD? Depends on how much are you willing to risk. It's subjective. What's better: - earn 25% p.a. with 40% max DD or - earn 15% p.a. with 15% max DD ?
market surfer no talking around: what did you find not accurate in my post? if i was wrong please tell me where. peace
That's an easy one. The 15/15 is a superior strategy. If you use notional funding at a 2:1 ratio on the second strategy versus the first, then the 15% p.a. becomes 30% and the max. DD only grows to 30%. Beats the first strategy in both return and risk.