gain vs drawdown

Discussion in 'Trading' started by 0008, May 30, 2003.

  1. 0008


    What is a resonable ratio of annual(or monthly) gain per drawdown? Is there any info for that in the web?
  2. In my opinion, the ratio average yearly return / drawdown should be 3/1 minimum.
  3. Foz


    Drawdown is a strong function of time. Traders with longer histories are going to have larger drawdowns. Just like you are more likely to get tails 5 times in a row by flipping a coin 100 times versus 10 times.

    A less-time-related measure of risk or downside is the standard deviation (or semi-deviation if a skewed distribution).

    And taking a ratio of excess return to standard deviation gets you to the Sharpe ratio.

    So if you are comparing traders I recommend the Sharpe ratio versus the Sterling ratio (return per drawdown).

    Top hedge funds have a Sharpe ratio (monthly return / monthly standard deviation) of 40%+. I'd say individual traders can use this as a benchmark also.