I've been working with a friend who is creating an automated (intraday)system. So far backtesting of 2years on 1min ES data creates 100% profit return with about $450 drawdown per contract per 3 months. Average trade count is about 1.6/day. How would one measure the severity of the amount of drawdown. Is there a rule of thumb? Generic formula? Any insight from the Elites would be appreciated. -Techdoodle
A couple of Google finding: "Trading Maximum Drawdown and Options on Maximum Drawdown" http://workshop.mathfinance.de/2006/papers/vecer/slides.pdf "Active Management of the Maximum Drawdown" http://www.stat.columbia.edu/~vecer/maxdrawdown2.pdf
For dollar based drawdown series... * DrawDown$(N) = Equity(N) - HighestEquityValue(0, ..., N) For Percent based drawdown series... * DrawDown%(N) = Equity(N) / HighestEquityValue(0, ..., N) * 100 In either case the biggest DrawDown is the lowest value for the series.
If you meant to do something looking like mathematics, you should use the right terminology: not "series" but "sequence".