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"Max Drawdown" Calculation Method


#1

Hi all,

As you know, C2 “Max Drawdown” Calculation Method as bellow:

"Max Drawdown" Calculation Method. We calculate the Max Drawdown statistic as follows. Our computer software looks at the equity chart of the system in question and finds the largest percentage amount that the equity chart ever declines from a local “peak” to a subsequent point in time (thus this is formally called “Maximum Peak to Valley Drawdown.”)

In my opinion, that Calculation Method is not clear for a REAL Drawdown of a strategy because the “largest percentage amount that the equity chart” is not exactly for evaluate a strategy. It should “largest percentage amount that the BALANCE chart” instead.

For example my strategy (https://collective2.com/details/118816746) Max Drawdown Calculation:

Real%20DD

The largest BALANCE chart is $13,754 only (13,419+335) but C2 show $14,242 (largest equity chart). That mean it’s worse 3.5% DD than it’s real DD.

Thought, C2 should add a largest balance line (above S&P500 line) and/or a Max DD based on “Maximum Peak balance to Valley Drawdown”.

Tips for Investors. Start subscribe a strategy closed all open position or a strategy with floating DD (you will get better results if those positions are loss). Do not jump into a strategy with open positions of floating gains.


How C2 Calculates DD
#2

Tips for trade leaders. Read the forum before you are posting your bright idea. With 100% of confidence it was already posted before. :slight_smile: And C2 already gave a reason why it is not implemented.


#3

Consider the following senario regarding how the c2 maxDD can be misleading when evaluating trading strategies.

Strategy A and Strategy B both open identical positions at Interval 0 @1000.
Strategy A closes position at Interval 2:
Strategy B closes position at Interval 4:

image
Note: The trades for both strategies were never in the red.

StrategyA: Profit:25% MaxDD:0%
StrategyB: Profit:30% MaxDD:13%

Which strategy (A or B) is superior?


#4

It doesn’t matter. Industry standard is marked-to-market. The only difference with C2 is they mark-to-market several times a day. Most use end of day equity. This makes C2 a tougher standard, but all systems are calculated the same way.


#5

GSPTrader: Respectively I disagree that ‘it doesn’t matter’.

Most are aware that the drawdown peak-valley is the industry standard.

The drawdown industry standard calculates the effeciency of a strategy:

a) Effiency of positive float maximisation (ie includes turning a positive float into a lower profit/loss).
b) Worst case drawdown (ie caters for trades that are open at peak floating gains whilst following/adhering to a strategy).

Privately I calculate the max drawdown as the “maximum the balance is in the red/loss”, which excludes the reduction of positive float. I consider the maximum the balance is in a loss, far more important than the reduction of positive float as long as the float remains positive.

The importance/impact of the metric,“the maximum the balance is in the loss” is a personal preference, however highlighting that c2 omits this metric.

Another metric that c2 omits is the history of the maximum leverage a strategy employs (or maybe I haven’t found it yet on C2), but the maximum leverage employed is another topic.

IMO, these two missing metrics are invaluable in evaluating strategies.

In summary, as suggested by c2-leader, the addition of a maximum balance (ie maximum closed balance) line plotted on the equity curve will highlight when the netbalance ( already plotted) of a strategy is positive when above the max balance line or negative (account/balance is in a loss) when below the max balance line.


#6

I’d take the StrategyB if I was an Investor because there is no DD here but more gains :slight_smile:


#7

Yes! It may help Investors more clear reviewing of a strategy performance.


#8

Calmar/MAR ratio has meaning in the financials, which makes Strategy A superior from that standpoint. It’s another way to assess risk like the long forgotten Ulcer Ratio. It’s easy to feel stress-free looking back at a winning trade that gave back something in hindsight. The C2 equity curve is very objective and times of each dip/peak are evident moving the mouse along it. Time to chill out on this.