Draw-Down Analysis

Discussion in 'Trading' started by J~Commisso, Aug 19, 2003.

  1. I was wondering what sort of measurements you guys (especially those that are or have traded other peoples money, such as P2, MarketSurfer, and Aarron) use when doing a Drawdown Analysis of your accounts???

    I have traded my own capital for years and have always used a very basic DD analysis, which basically only measured 5 things; Magnitude, Length, Recovery, Valley, and Peak...

    But in the 4th Qtr I will make the transition to managing OPM, as well as my own, and I was just looking to get ideas as to how other traders view and measure their own dreaded drawdowns #'s...


    PEACE and good-trading,

    EDIT; Just to clarify -- When I say OPM I mean I am managing an account for a private company so I am not required to follow any regulations or guidelines to report drawdowns to the company itself...
  2. How come when some applehead starts a thread about avg 6 pts per day on the ES, it gets a thousand replies, but when someone wants to discuss measuring and analyzing DD's it gets zilch???

    Makes a young man wonder :confused:

    PEACE and good-trading,
  3. Because everyone ignores 1-post newbies. :)
  4. J,

    Congratulations on your advancement to OPM.

    I wish I had something constructive to add to what you've already done, but I don't actually do any sophisticated drawdown analysis currently. I've been trading a mechanical system for 2 or 3 months, and every drawdown has been well below the mean level. Off the top of my head, it seems it would make sense to compare every drawdown stat to its average over some decent period of history, and when the mean is rising take note. I'll be able to tell you a lot more about this when my systems exceed their max historical drawdowns. Fingers crossed that this wont be for several months..
  5. The "risk of ruin" technique is one i've heard about but have yet to try.

    Once you have a list of "x" trades and results, you have the computer randomly rearrange the trades and re-plot the equity curve.

    There will be some arrangements where the losses really clump together and draw you down 50% or more. That's called "ruin".

    How often does it happen? In 5% of the arrangements? 10%?
    That percentage is called the "risk of ruin".

    Note you can try this no matter what kind of trader you are, discretionary, systems, or whatever. All you need is a list of trades and results.
  6. Nice to hear from you Chris! Hope all is well in Reality land :D
    I picked up Vad's book the other day, but have yet to read it -- I hear you guys both did a great job though...

    Say hello to the rest of the gang for me, especialy Bo and Vad :)

    PEACE and good-trading,
  7. ChrisRT


    Yeah, Vad and I are pretty happy..2 years of work... outlines, writing it, editing it and now finally being published and released on Friday. I'm actually taking Friday off in celebration!! Vad's off taking his daughter to college and won't be back until September 1 but we are both pretty excited about it. We'll be in Vegas in November for mine and Bo's seminar presentation..maybe you can make it in for the weekend and we can have a few drinks?? Let us know how you like the book..we look forward to the feedback.

    Again, best regards.

  8. Thanks Peter! This is exactly the type of thing I was looking for with this thread. "Risk of Ruin" measurement indeed sounds interesting and after all these years has totally managed to escape my limited realm of imagination :)

    Do you happen to have any links or know of any resources where I can further explore this concept?

    I assume the measurement will require a large sample, so I do not think it will be of much use for me in the beginning reporting stages; being that I will be trading the account primarily on the swing and position TF's, but it is still a very interesting concept -- Thank You!

    PEACE and good-trading,
  9. Commisso: nice to see you back. I knew you'd be into OPM before too long. Did you check out the thread Pabst did to honor the wisdom of Publias Enigma? It's nice to read the insightful classics again, and to realize that the good stuff keeps on working.


    I printed out first post of yours in that thread (the reply to Newatthis). That post is a real gem and a keeper.

    I can't say I do analysis of drawdowns but I do keep track of closed daily, open daily and cumulative drawdown. I'm sure the CTAs on this list will have some usable info for you. Risk of ruin sounds like a keeper idea.

    Take Care,

  10. damir00

    damir00 Guest

    well you're obviously not a marketing guy. where's the title?! :)

    #10     Aug 19, 2003