What kind of drawdown percentage is reasonable to you ?

Discussion in 'Risk Management' started by joesan, Aug 5, 2007.

What kind of drawdown percentage looks reasonable to you ?

  1. below 5%

    14 vote(s)
  2. 5%-10%

    20 vote(s)
  3. 10%-20%

    25 vote(s)
  4. 20%-30%

    9 vote(s)
  5. 30%-40%

    7 vote(s)
  6. above 40%

    14 vote(s)
  1. joesan


    I understand it is related to personal risk tolerance and account size, but what kind of drawdown percentage looks reasonable to you ?
  2. oTzt


    Difficult to answer like that.
    To me, the length (in days, weeks, months, ...) of a DD is at least as important as it's depth.

    For example, 25% during one week may seem bearable, but what if did last 6 months ?
  3. ts888


    yes, what timeframe is the poll based on?
  4. joesan


    The drawdown is measured with a timeframe of one year.

  5. Aside from long OR short, one can trade in different styles or for different reasons. For example quick trades (in my case Low day 1 to High day 2) to cover overhead, yet take on positions with longer horizons for capital formation.

    Acceptible drawdown should probably be a function of an instrument's intherent volatility (which is dynamic rather than static). Shouldn't it? This in turn relates to position size.

    Basically, a more volatile selection needs "more room".
  6. I think this is different according to the enviroment.

    In a normal enviroment with low volatility (like we had on 2005-2006) my "allowed" drawdown is about 2-5%.

    If conditions change and we have increased volatility (like we had the week ago) then 5-10% (of course when volatility steps up is easier to win as to loose)
  7. I've always aimed to restrict my drawdowns to 10% or less. I only exceeded that once, by a fraction of a percentage point, that was on September 11th 2001.
  8. drawdown is not the point

    switch to different system according to different market conditions
  9. Well, the point of a drawdown you experience is that it's usually a sign of whether your system or trading approach is suitable to current conditions. If you are down more than your tolerance limit, then by definition you've made some kind of mistake and ought to reasses things. Chances are, the market state has changed and shifted to one that is not favourable to what you were doing.
  10. joesan


    Yeah, exactly.
    #10     Aug 10, 2007