Max DD Formula

Discussion in 'Strategy Development' started by Corso482, Oct 19, 2003.

  1. I'm trying to figure out the maximum draw down for my backtesting results In Excel.

    I have a column with a running total of my account balance, i.e. my equity curve. How do I extrapolate the maximum draw down from that column? Thanks.
  2. Couldn't you use the MIN function for the column? No wait just find the difference s from point to point and then use the MIN function on That column.
  3. If you don't have the trade by trade P&L but equity (account balance), you can also use this method :

    Assume equity is in A1:An. In column B, let B1 equal +A1. Then in B2 enter =IF(A2>=B1,A2,B1) and copy this down to Bn. In column C, let C1 equal +A1-B1 and copy this down to Cn. The maximum drawdown (in dollar terms) is the minimum of column C, or =MIN(C1:Cn).
  4. thank you
  5. olintner


    Hi Coros482,

    please be aware that MDD is a path-dependent variable. That means if you reshuffle your trades, they will give you a need max draw down. Your average earnings don't vary through reshuffling because at the end of the day the earnings will show up...

    If you only use closed-trades-pnl you also run the risk of running out of margin if a very bad opening or intra-day-move hits you. Given that many long-term-trend followers have an equity-margin ratio of up to 60% that's a real threat.

    Good trading, Oliver