How much drawdown for this return?

Discussion in 'Strategy Building' started by tyrant, Nov 11, 2006.

  1. tyrant


    Assume I have a strategy that is pretty consistent returning from 30-50% per annum with a more conservative estimate of at least 20% per annum on average, what kind of maximum drawdown are you prepared to accept to trade this system? And what kind of average drawdown (those that happen frequently) should I be prepared to accept for these kind of strategies?

    The purpose of this thread is to find out what sort of risk people are willing to take, given an expected return.
  2. tyrant


  3. 20% per annum means ur basically only beating long term SP by about 1.5-2 standard deviations maximum.

    id be prepared to accept anything with drawdown no more than 1.5times the max drawdown of the SP500 assuming a buy/hold strategy over the period your backtesting.

    otherwise ur better off buying SP500 at 2:1 leverage and sleeping easier.

  4. I make 50% per annum as a Position Trader.

    The largest drawdown I've ever had was about 18%.

    Hope this helps.

    I will be happy to answer any more questions if you have any.


    U.S. Share Trader
  5. tyrant


    Your max drawdown is 18%. What about normal drawdowns? How big are them? For e.g, do you expect 1 or 2 drawdowns of 5% or 10% per year?

    I understand that you trade U.S shares. How many strategies and trades do you execute in a year?

  6. igor043


    2% is my max drawdown.
  7. This helps a lot.

    When I grow up... I wanna be U.S. Share Trader...
    And everybody gonna call me Mister.
  8. 1.9. :D
  9. The max drawdown should be the average monthly gain, no?
  10. Roughly and generally speaking drawdowns are about half of the annual rate of growth. So if you want 20 % gain, you might prepare to lose about 10 % sometimes.

    There is nothing preventing account equity from showing a 60 % loss at any time. The big losses can happen.
    #10     Nov 12, 2006