No problem GMST. I think many people are underestimating how big of an effect this can have on drawdown expectation going forwards. I will not even waste my time looking at the drawdown reports that Multicharts produce until i have adjusted data to mark price to current market price.
Crude strategy shows massive difference in drawdown values and what should be expected going forwards.
Re. futures trading, using a % of price for your stop & target is very wrong as well, because of backadjustments. For example, let's us CL: - Looking at a backadjusted price-series (like I & most everyone use for backtesting), the price on July 1st, 2003 at the close was 97.25 - Looking at the actual price that day, the close was 30.03 The only way around it is to make stops / targets function of a volatility measurement, be it an N-day ATR, or a more specific measurement based on price-action, anyways, something immune to backadjustments.
One of the first rules of systems is that if your assumptions are faulty, your conclusions will be faulty (garbage in, garbage out). It is obvious that if face value changes, and number of contracts stays the same, then position size will change - and thus profit, loss, drawdown etc will change also. Position sizing (i.e. risk taken) should never be based on number of contracts, it should be based only on your capital, your risk tolerance, and the % drawdown risk of the trade (or trades/system). You have to work this out for each trade, and then use the contract size closest to your theoretically ideal % risk exposure. Your error was to assume that if you just plug in a 1 lot, this will equalise your position size over time - but there are no grounds whatsoever for making this assumption. If you had created a step to monitor and equalise your position size as a % of capital, based on the % drawdown risk and your own risk tolerance - something all traders and systems should do - you would not have had this problem. The lessons are: i) you must be intimately aware of ALL factors that influence trade decisions. If you are not, you risk missing one or more of them, and thus coming up with flawed trading decisions, which will usually cost you money by driving you away from optimal trading. ii) you must be clearly aware of EVERY assumption you are making iii) you must examine ALL assumptions rigorously for flaws, and eliminate them unless they are based on sound evidence. Alternatively you can do what most people do which is 'wing it' - this is much easier and quicker early on, until you take a bath one time, or run into changing market conditions and wonder where your edge went. And even if you are lucky and don't get caught like that, you will still be making far less profit, and taking far more risk, than you could or should. But the number of traders willing to do this groundwork and effort is minimal, maybe 1 in 10,000 or less. They either arrogantly assume markets are so easy that large competitive advantages can be passed up with impunity, are just too lazy to do the work, or (in most cases) lack the experience and preparation/research to even realise that such things exist.
Thanks for advice. However, you are missing the point here. The simple conclusion i was trying to make was that a new strategy with 1 contract position size could have misleading drawdown. Its easy to position size as percentage of capital in Mulitcharts - these are standard features on nearly all system based software.
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% Tre3; good points The reason WHY max drawdown is useful, past history can REpeat but; its NOT a prediction. Good point on 1987; typical in that year,,as in many markets ,,,was UP year/finish. NOT that uptrends are predictions.Trends are not predictions; but YOUR /MY trends contain SLIPPAGE, commissions, add other exspenses...................................................... And I just found an old Interactive Brokers calender, today; about 43%/+ of IB customers profitable, other brokers[ about ten/+], profitable traders DOWN trended to about 22%profitable.Investors may or may not do better