How much DD can you tolerate - in $ -?

C2
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How much DD subscribers can tolerate in $ terms not % , before they start getting nervous ?

We’ve heard many times that a 5% DD or even 10% is more than fine , but is it ? In practice it seems subscribers start fleeing after the slightest DD . As a system developer this is an important issue to consider while building a system . Sure anyone can tolerate a few hundreds in the red , it is easy to recover in real life , but even if you are a millionaire a $20K DD is steep and it is going to make you unsubscribe . Even $7k DD is going to hurt your stomach no matter how much money you have - i am talking about C2 traders here - .

Please share your opinion , i know it is relative but in reality no matter how the system is good subs will get very nervous - rightfully - after a certain DD .

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Systems that have overnight positions simply gamble and will be eventually wiped out.

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then buffet should of been wiped out loong time ago

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Buffet plays different game. He MANAGES companies.

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TSH, do you think C2 traders are undercapitalized to withstand a reasonable DD, say 10-15 percent of equity?

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For me, generally around 5k is when it starts to sting. Approaching 10k and I am usually out. Obviously there are at least 10 different variables that change these numbers. For example for one of the systems I am trading, 2k DD and I am done. Another, trying to catch trend reversals, I have 10k DD appropriated.

I think the most important thing is having a fixed number for allowed DD before trading a system and only abandoning it if you hit that number. This removes some of the emotional discretion that plagues many traders, myself included. I think stressing this to subs might allow them to understand how the game works, a little bit better.

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Please share your view , thanks …

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Not sure I agree with that. Is there such a thing as an overnight market anymore? ES, for example, is open 23 hrs a day and highly liquid.

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I think that it also matters if the strategy is in a losing stretch. If the strategy was averaging 60% wins, and then going down to 30% i would be less sympathic than if the loses were just larger

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hi, i was a quant trader for 11 years for a french CTA, i am in the process of launching my own fund in Luxembourg, the max dd investors can accept is around 20%, especially if this is a quantitative programm. you have to know that risk and reward are very correlated, take a look at sharp ratio. i do not speak about options but in the futures market if you want to make 50% a year you have to be abble to accept a 20% dd.

Laurent
SPREVETRADINGSYSTEM

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Still looking for feedback …

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So my point of view is:
Never check DD in $$$
Only percent %%% matters
You will have different costumers with wide Range of accounts side so each feels different

You should do your best to get the best ratio of return vs risk/dd and it’s always best to focus on your system result and not about the followers.

When u lose 5% it’s 500 for costumer x and 5000 for y and maybe 20,000 for z

Maybe 500 for x is heart suffer and 20,000 for z is nothing …

So focus on your best results in %

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What you are saying is totally correct but thats applicable to forex and stocks systems , however thats not the case with futures systems trading 1 futures contract , some trading systems may have 2k dd however other futures trading systems may have 10k plus dd but ofcourse with better returns , while all is trading just 1 futures contract .

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Here’s our point of view:

Measuring Drawdown/Risk at a Strategy level and at a Fund/UserPortfolio level are two entirely different aspects.

We measure each strategy’s risk profile using factors such as Calmar/Drawdown ratio, APD, %Winning months, e.t.c. A strategy with a high APD is capable of returning out of drawdowns quicker than say, a Scalper algorithm which has high success rate but a low APD. On the other hand a strategy with a high Calmar ratio can be deployed on lesser capital with higher leverage and can be easily paired with other strategies or Fixed Income.

At a Fund/Portfolio level, the focus shifts to improving Sharpe Ratio while reducing Max Drawdown to the client mandate. This can be achieved through diversification. You can consider (a) running the same strategy on uncorrelated instruments, (b) running different strategies, © choosing how to employ profits generated, e.t.c.

Here’s an example to illustrate the point:

We filtered the Grid for all C2 systems having C2 Score > 95, Age > 60 days, Trades > 60 and Sharpe Ratio > 4. This gives two strategies with entirely different performance metrics as shown below.

Next we created a Portfolio of $50,000 allocating equally to each of the strategies. And we get a combined portfolio which has better Cumulative return and lesser Drawdown than either of the individual strategies.

To a strategy developer, we would suggest that the focus should not just be on reducing $or% Drawdown, but also on improving factors such as Calmar Ratio and APD. It is the Fund manager/C2 users’ responsibility to judiciously deploy capital and employ leverage in a manner that keeps Drawdown within their expected limits.

Disclaimer: We are the owners of TickPrime SP500.

Regards,
ACA

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I think many didnt understand the idea behind this thread , my thread isnt to talk about what would be considered as s good system but rather what risk subscribers here can tolerate . For example you can start a system with 1 million in funds swing trading multi assets stocks options futures and forex making 100% annually but with a drawdown of 100K , technically thats a great system but certainly you wont get a single subscriber here .

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TSH, I think people did understand your question but you are not being realistic. You can easily put your money in lots of things, even an sp index fun and have 10% draw down. In fact a normal ‘correction’ in the sp is 10% in a given year. That does not mean it will find down 10% or more. In fact C2 calculates intra trade draw downs (which may in all honesty be a good way to do it) but keep in mind most funds report realized draw down. so it makes their numbers look better. But they are dealing with bigger numbers and by the time they have a big blowout (such as the energy hedge funds of late) the numbers do not matter because they are just gone and out of business. so if you had 10k would you tolerate a 1k drawdown? the math is the same vs the 1 mil account with 100k drawdown. You cant look at the dollar amount you have to look at the percent of min portfolio funds. One trade or one week does not matter it is how the fund does on a consistent basis over time.

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Agreed on a lot of this but taking the C2 score is a horrible way to justify things. I know you made the disclaimer that you own TickPrime so i see why you wanted to use the C2 score as it boosts your rating but in all honesty C2 does not include it as a default filter (for very good reasons which I wont get into). Plus, they say its a percentile rank of their best systems over time. Oh yeh, justified by what? Its seems like maybe pure return? because if you look at the top ones, I mean ones that have 98 and 99 rankings some of them have 80 percent draw-downs. I would pull that out of the mix.And whether you are a a fund or strategy developer you are selling the same things on here and that is signals so EVERYTHING should be looked at, drawdown, calmar, shapre, sortino, amount of trades, etc. If you look at the overall picture and get rid of that C2 score which means nothing of course your system is still up there (seems like good system) but there are others doing much better besides the two you mention.This is all about one thing, making the most return on your REALISTIC starting capital by taking the least overall risk possible. (judged by all the factors mentioned above).

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Still didnt get my point , surely a 1k dd will never be for subscribers like 100k dd even if both are 10% of system equity .

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So the thread is to get feedback from subscribers and see if there is demand for high equity strategies .

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@GameTime, we agree on the points you mentioned. The reason C2 Score was used is to filter for systems that are consistent over time, as C2 score seems to reward consistency and low volatility of the equity curve. At the same time if there are systems with high C2 score and very high Drawdown levels (while that would have made the sample selection bigger and not smaller), that’s for C2 to explain, as we do not know the maths behind it!