Drawdown measurement

[Techdoodle]

I've been working with a friend who is creating an automated (intraday)system.

So far backtesting of 2years on 1min ES data creates 100% profit return with about $450 drawdown per contract per 3 months.

Average trade count is about 1.6/day.

How would one measure the severity of the amount of drawdown. Is there a rule of thumb? Generic formula?

Any insight from the Elites would be appreciated.

-Techdoodle

 

[OddTrader]

A couple of Google finding:

"Trading Maximum Drawdown and Options on Maximum Drawdown"
http://workshop.mathfinance.de/2006/papers/vecer/slides.pdf

"Active Management of the Maximum Drawdown"
http://www.stat.columbia.edu/~vecer/maxdrawdown2.pdf

 

[itmediaco]

Drawdown is measured by comparing the highest peak to the lowest trough on your equity curve.

 

[toe]

For dollar based drawdown series...

* DrawDown$(N) = Equity(N) - HighestEquityValue(0, ..., N)



For Percent based drawdown series...

* DrawDown%(N) = Equity(N) / HighestEquityValue(0, ..., N) * 100



In either case the biggest DrawDown is the lowest value for the series.

 

[nononsense]

Quote from toe:

For dollar based drawdown series...

* DrawDown$(N) = Equity(N) - HighestEquityValue(0, ..., N)



For Percent based drawdown series...

* DrawDown%(N) = Equity(N) / HighestEquityValue(0, ..., N) * 100



In either case the biggest DrawDown is the lowest value for the series.

If you meant to do something looking like mathematics, you should use the right terminology: not "series" but "sequence".