Drawdown on account?

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EqtTrdr

What is to be considered normally acceptable drawdown percentage% of an account one could expect over time.


Understanding that all great systems/traders experience a drawdown in account size, what could be condsidered max level to be able to recover from on an ongoing basis?


I have been trading and making money consistantly, but have recently experienced a 17% drawdown in account balance.

Over the course of the last couple years, the norm was 5-10% and I had no problems recovering.


Any experience, suggestions are appreciated...

Thanks,
 
Drawdown is a function of:

win %
average size of win
average size of loss
std. dev. of winning trades
std. dev. of losing trades

If you are willing to post the win%, ave. size of win, and ave. size of loss then I'll post a probability map showing you what to expect.

For my trading I require a 10:1 ratio (annual profits to max. drawdown) and wouldn't trade anything that had more than a 10% max drawdown expectation.
 
Here's a example using my prod5 for one year of expected trades for 1 SP contract.

Notice at the 50% level, the expected outcome is more than 13x the expected Max DD. Even at the 99% MAX DD level it's still over 5x the 50% level outcome. Knowing there is more than a 99% chance of making money with one year of trades gives me lots of confidence in trading this model.
 

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Quote from EqtTrdr:

What is to be considered normally acceptable drawdown percentage% of an account one could expect over time.


Understanding that all great systems/traders experience a drawdown in account size, what could be condsidered max level to be able to recover from on an ongoing basis?


I have been trading and making money consistantly, but have recently experienced a 17% drawdown in account balance.

Over the course of the last couple years, the norm was 5-10% and I had no problems recovering.


Any experience, suggestions are appreciated...

Thanks,
More...

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Eqt Trader;

Acrary made some good points;
would add to his points depends on the market one trades .

17% does seem to indicate some changes need to be made IF in a tight NYSE market ;
17% drawdown in one of my favorite derivatives market doesnt mean much
-bid ask spread =average [-7% or more].
Add slippage to that.

Could be something as simple as EXCEPT for this uptrending week;
DIA, SPY , QQQ was in sideways trend [range] for months, easy to overtrade & lose more for any time frame trader.

%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

Even though I dont want to work exactly 20 hour days like Buce Kovner;
watch his max drawdown from years 1985-2000
[-2.19% drawdown ] was his worst year !!!

In a multitude of counsellors there is safety.
Solomon, trader king
 
Stop trading immediately !

Re examine your recent trading habits, reasons for entering and exiting the market, trading vehicles, and psychological state.

You shouldn't resume trading until you've identified the cause(s) of your recent drawdown.
 
Quote from acrary:

Here's a example using my prod5 for one year of expected trades for 1 SP contract.

Notice at the 50% level, the expected outcome is more than 13x the expected Max DD. Even at the 99% MAX DD level it's still over 5x the 50% level outcome. Knowing there is more than a 99% chance of making money with one year of trades gives me lots of confidence in trading this model.
More...


Soooo, uhhhhh, is that like a monte carlo simulation?
 
Quote from acrary:

Drawdown is a function of:

win %
average size of win
average size of loss
std. dev. of winning trades
std. dev. of losing trades
More...

What is the formula you use to calculate the drawdown from these variables?

Do you use the "Monte Carlo drawdown optimization" or some other comparison against randomness for the drawdowns, in the same way that you compare your trades to randomness to check for an "Edge?"

(Wow, post number 30 for me. I'm moving up in the world. Not a junior member anymore LOL!)

Allan
 
Quote from EqtTrdr:

What is to be considered normally acceptable drawdown percentage% of an account one could expect over time.


Understanding that all great systems/traders experience a drawdown in account size, what could be considered max level to be able to recover from on an ongoing basis?


I have been trading and making money consistently, but have recently experienced a 17% drawdown in account balance.

Over the course of the last couple years, the norm was 5-10% and I had no problems recovering.


Any experience, suggestions are appreciated...

Thanks,
More...

At the absolute minimum, to give you any kind of significant advice, we need to know what market(s) you trade and what timeframe was the 17% drawdown. Of course, the more specific you get about your system the more meaningful replies you will get.
 
Quote from spreadem:

Stop trading immediately !

Re examine your recent trading habits, reasons for entering and exiting the market, trading vehicles, and psychological state.

You shouldn't resume trading until you've identified the cause(s) of your recent drawdown.
More...

Generally I agree that it's a good idea to stop trading following a big drawdown. You need your emotional balance back. Otherwise, you might feel compelled to want to make it back right away and do something stupid.

Also, it feels good to clear out the positions and just relax once in a while.
 
the reason for the drawdown is obvious to me...lol

removed my stops and was "hope trading", got the old "deer in the headlights look" and kept doubling up on the losers....

I never do that, and for the most part always fight the urge to do so, but it figures the one time I did, it bit me in the rear :)


I know WHAT I did wrong, but figuring out WHY I did it is another story.


the reason for the thread is that I was doing a search on here for drawdown but could not come up with an acceptable range for a trading sytem over infinite outcomes......


thanks for all the input!!
 
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