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How much Draw Down is too much?


#1

Hello everyone, I am fairly new with C2. I have read many posts about draw down but I am curious as to what everyone thinks an acceptable amount of drawn down might be. Also, does frequency of draw down play into investors minds? Would you rather see a 15% draw down twice a month or a 25% draw down every few months?
Thanks for the input, and happy trading.

Michael


#2

Neither.

But honestly it depends on the return profile of the strategy. If it is a swing for the fences strategy and shoots for 100% annual returns, I’d fully expect a 25% DD at some point during the year (I would scale it down in that case!). Likewise if the strategy is conservative and shoots for maybe 1-2% a month, I would expect single digit DDs, only double digit in extreme circumstances.

Two 15% DD’s in the same month would be a non-starter for me. That means max future DD is going to be huge. But everyone is different. I like to see max DD less than annual return for starters. Makes sense.


#3

let me explain with some advertising :wink:
Two strategies that look vastly different to naked eye - but they are essentially same - one is on futures i.e more leverage , other using TQQQ (ie.less leverage though 3x leverage is huge by itself) . One using NQ Futures caters to C2 crowd somehow (probably need more leverage to attract more customers! ie. if i double contract size, may be return would be 200% as of now with 30% drawdown ) the other one noone cares - 0 subscribers but probably a fund might like. only reason to keep it here on C2 is for my own track record.

Bottom line - everyone has different tolerances to drawdown. I will never look at it as a one number in isolation.
Frequency of drawdowns is a good point - I might forgive a strategy that might have had a 25% drawdown (and say 50 % annual return) once in 3-4 years but average drawdown much lower than that. 15% drawdown twice a month on average (no matter what is the annual return) wont last long! likewise 25% every few months also will not last. Most likely that is.


#4

though i tried for a 10% unfortunately i got it now at 25%, however since my return is now 200%, its really an 8 to 1 risk reward just in 1 month. https://collective2.com/details/120266409