Largest drawdown trade for SPODD500 is 4.18%, but the strategy page shows 4.8%. Why the difference?
8/13/19 15:57 SPXL DIREXION DAILY S&P500 BULL 3X LONG 1,597 47.85 8/19 9:59 49.20 4.18% $2,140
Probably because of the inclusion of fees in one and not the other/perhaps taken at slightly different times. They don’t check every second or anything like that.
This topic has been covered elsewhere a few times, so please forgive my brevity here:
You are comparing two very different measurements. One measure is of individual trade drawdown. The other measure is of the peak-to-valley drawdown of the strategy’s entire equity curve.
Just a quick example will suffice to show why these should not be conflated.
Imagine you open two trades in a row.
Trade 1: Starts off at profit… then goes into a loss (ultimate drawdown of individual trade 2%).
Trade 2: Starts at a loss (initial maximum drawdown 1%) but then winds up at a profit.
You might see your strategy’s overall equity drawdown at 3% (measured during the time period that begins when trade 1 starts to go into drawdown, and ends when trade 2 begins to reduce its initial drawdown). This overall 3% is a very different number than any individual trade drawdown that C2 displays.
While the following does not apply to your strategy, a further confounding factor for many strategies is that multiple trades can be open at the same time, which means that any single individual trade drawdown is just one component of overall equity drawdown.
That makes sense. There was a lot going on with that trade. We were trying to take full advantage of our bullish sentiment while knowing full well we were going to take the reversal a few days later. We feathered into the bull position with 25% equity and it moved against us, then we added to the position. We called our shots on the first day of the trade and announced that we would be adding to the position (to let you know we were not doubling down on a loss). Even though that was one of our most profitable trades - I have decided to not take the early signal from now on. It will make the accounting much cleaner and obvious. I can see how the overall position created a little larger drawdown. Thanks for the explanation. Matt - please check your PM I have a system question that I don’t want to make public. Thanks.
