If a Futures trading system’s profit is defined by the closing price, then I would think that intraday fluctuations of equity drawdown could be misleading as to a systems real performance. If I understand C2 drawdown calculations, I believe it tracks to the price of a trade. For example, say a system had a new peak equity at the close of day of $100,000. Next day all open positions during the day fluctuated at one point in the day a negative $10,000 off yesterdays peak equity. So, during intraday trading, the C2 drawdown calculation is 10%. But at end of day, the open positions closed profitably to create a new equity high close of $110,000, a 10% increase in new equity. However, the new drawdown is still posted at 10%, even though a close of day the Equity is back higher than the intraday equity drawdown. It seems to me that the C2 drawdown calculation is not really a fair way to measure drawdown to those systems that base performance on open positions at the close or when trades are actually closed. Appreciate some feedback.
Hi @TradePath, I think this discussion was posted in another thread. In fact, looking back there are quite a number of threads discussing this topic.
I believe trade leaders don’t like to see the intraday drawdowns posted. In particular, those that have huge drawdowns and those that average down their trades.
Thank you for indicating that there is conversation about this on other threads. However, when I typed this comment, nothing came up. Anyway, averaging down in a bad trade situation will still show a large draw-down via the close. I don’t believe investor looks at their statement intraday or cares what happens intraday. They only see their statements via close end of day or via a closed trade. No trader will sell or buy the low…ever. So, why is drawdown based on the fact the you could? If I have a good position on, volatility could be high and ups and downs could generate large swing move intraday. If I have on a good position, I don’t care about the intraday movement. But, my system get penalized for being right in the end.
Trading for fear of intraday equity drawdown is not how I trade. That will mess up a system…gauranteed!
By the way, I am an overnight position trader…not a day trader.
@TradePath, search for the keywords ‘max drawdown’. It will come up with tons of threads.
Also, you don’t need to be a daytrader to average down.
Anyways, don’t shoot the messenger I am only commenting the fact that traders who tend to swing trade or average down will criticize the drawdown calculations. I know its very hard to keep drawdowns low and have larger profits since trading is all about risks.
The current C2star program is an example of systems that have low drawdowns. Putting a restriction on drawdowns does put a cramp on systems results.
Thanks Algo. Ha, didn’t mean to come across as shooting the messenger. I will read the ‘max drawdown’ threads. Thanks again. Good luck.
To an investor watching a strategy for early signs of worry, or considering placing their own stop losses on an investment (in case the trade leader does not have stops on), the intraday drawdown is a very important thing to have available for examination. Trade leaders? Not the same wants or needs, they generally want the best looking equity curve (ie, please Matt, please ignore those intraday drawdowns!).
Take the example of Crude Oil today. If you bought the close on Friday as your systems 1st trade, the intraday price action negatively effected the drawdown calculation, and would give your system a negative drawdown number. But at end of day, the Trade was profitable, which is when the trade result really counts. In my humble opinion, this position trade did not deserve a negative drawdown number…it won the day. Maybe there needs to be 2 drawdown numbers.
I bought stock at the close on October 7th of 2007 and held until the close of May 2013. I had no drawdown on the decade scale. I think there should be three numbers. I am of course just kidding. Honestly I think you only need one drawdown number and it needs to be made with the most precision that is possible.
that was a good trade…no drawdown is no drawdown.
There is a standard definition of Max Drawdown (sometimes called “Peak-to-Valley Drawdown”) which is used by everyone in the financial industry, and which is required to be used by all frightening financial regulators. It requires the use of intraday data. This is the method used by Collective2, and it will not change in the foreseeable future.
There are two ways to measure maximum Drawdown.
- Intra-day Pick to Valley
- Trade Close to Trade Close
C2 measure it only according to Intra-day Pick to Valley.
Basically, if the new subscriber decide to start his first trade just after the current signal then Intra-day Pick to Valley calculation is not helping him at all… Actually, the Trade Close to Trade Close calculation shows him what is the real Drawdown when he start with fresh signal…
The best will be if C2 could add another calcultion which shows the maximum Drawdown between Trade Close to Trade Close.
Most trading platforms show both calculations.
See for example the TradeStation report:
Always nice to get a picture to explain things clearly. Thanks for posting your thoughts on this.
Matthew brings in a good point about the regulators. Just saying , that it would more fair to the leaders who value the close to close drawdown calculation, for the investors to see both calculations. Just my humble opinoin.
If you bought CL on a Friday, and price dropped intraday on a Monday before recovering and closing up, then you had a drawdown on the trade. Period. A drawdown on the trade means the system also had a drawdown, since the individual trades make up the system.
That is absolutely 100% wrong. Investors care also about how the trader is trading, not just the end result. I look at individual trade drawdowns all the time. Do you really think an investor would be OK with a trade that drew down 25% of the overall account in order to make a 3% return??? There are plenty of examples of this sort of thing on C2.
I agree, they should look at the drawdowns per position. Great way to see how the leader manages positions, especially futures. If stops are used, it gives you and idea of the risk the leader is taking. My point is, intraday volatility in futures sometimes has to be considered (at least in my system) for caluculation of risk vs reward. So, at times, a little more risk is required via volatility, but yet higher reward is still in play. So, if a volatile day occurs, that will surely affect drawdown, but the position is still in play at the end of the day, the close vs close drawdown is a number that has merit. Just provide both numbers. I know I have clients who would certainly like to see both.
Investor can download system trades in .csv and build trade close to trade close equity if he really wants. But it seems that only trade leaders are interested in this equity.
DDs per position doesn’t make much sense for some strategies. If you use options for hedging, for example, most will expire worthless, a 100% DD for that position.
The idea that investments should be viewed in isolation rather than in a portfolio went out in the 1960s when modern portfolio theory took over. The modern view is now enshrined in the Uniform Prudent Investor Act, which was been adopted in nearly every state in the 1990s (and since).