Discussion in 'Strategy Building' started by Corso482, Jan 22, 2003.
you're probably aware that "not accurate" is not a real statement.
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.
it's not a real sentence, but it is a real "statement".
The ever popular "buy and pray" strategy yields ~10% per annum with the max D.D. of ~90%. :eek:
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 ?
no talking around: what did you find not accurate in my post? if i was wrong please tell me where.
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.
exactly. objective choice.
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