But there is still some" change" I encounter,since I have 3 buys and 3 sells on my screen.Do you think I should keep just one and get rid of others two?
Whatâs an acceptable max DD for a strategy?
- Thread starter macintash
- Start date
To answer you Q.There is no correlation,as Jack pointed out to you yet.Your DD will be constant,no matter what size you trade,up to the market limit(capacity).
MattZ
Sponsor
The right balance is the one your risk tolerance can live with.
50% return with 20% drawdown IMHO is reasonable. You may find that 40% drawdown to achieve 100% could be quite high and may cause someone to pull the plug during such time. The key is to be realistic in terms of thinking through the worst case scenario, and your anticipated behavior then.
I will add another variable: I find that people who build their own methods have much higher risk tolerance for drawdowns as oppose to people who invest in CTAs, systems, etc. Passive investors despite seeing X% returns and certain drawdowns, behave quite differently when in drawdowns. I am just suggesting this because I am not sure if you trade your own or looking trade someone's method.
In general, you should always assume that your worst draw-down is still ahead of you and plan accordingly. If you have a reasonable back-test or a long enough real-life track record, you can/should think of some sort of MC re-sampling to estimate what is the worst case draw-down - while it will not simulate worst-case market conditions, at least it will simulate worst-case loss chaining.
Conclusion, this is what I think. The max size/DD really depends on 2 things. 1)Is your comfort level, how much can you see your account down and still sleep at night. 2)you want to make sure that when the max DD happens (and you need to calculate a little worse then what your model says..) you should be able to rebuild the account. For me the answer would be a max of 2.5 leverage with 25% DD. Anyone else that has some input you welcome to share.
it's very dangerous and scary to watch your account drop 25% and then have the balls to pull the trigger on the next trade....I wouldn't do it
be realistic...I would only encourage tolerating a 25% drawdown if you've seen your system recover from such 25%+ drawdowns at a minimum of 30 times (in which case you would size your risk accordingly)...otherwise, consider standing on the sidelines at 8%-10% drawdown and virtual trade the system until it comes out of drawdown....let it cycle through a few more drawdowns just to be sure it's probably back on track before jumping back in with real money
DD's are ultimately a matter of personal tolerance levels IMHO. And at the end of the day, strategy design is heavily influenced by the tolerance level for pain once the system gets tested in live markets and the real money P&L starts printing. The rubber meets the road and what looked so promising yesterday might be disappointing today. I don't think there's a stock answer to the OP's question because human nature intervenes and the trader will typically change his system or introduce discretion into his strategy in order to make the pain go away. And each person has different account capitalization and pain threshold profiles.
Each trading instrument or product or spread combination will have it's own trading range characteristics ( volatility ) and in my mind that will influence personal comfort levels in terms of what kind of DD I should expect from a potential trade.
For example, an RBOB Gasoline Crack Spread might have 20 day average trading range of 200 tics. A Eurodollar Dec 14-15-16 butterfly spread might have a 20 day average trading range of 2 tics.
When I look at historical data on the various markets and spread combinations, the technical studies in my trading system are also revealed and from that I try to anticipate how long my holding timeframes might be for a potential trade looking at the lifetimes of past signals and the resultant market moves that transpired. For example, the last signalled move in that RBOB Crack Spread might have had a trading range of 900 tics and a lifespan of eight days - while the last signalled move in that Eurodollar butterfly might have lasted eight months with a trading range of 28 full tics.
I hope that I haven't been too confusing or too simplistic. And I sincerely do hate the stock answer "that it all depends".
Each trading instrument or product or spread combination will have it's own trading range characteristics ( volatility ) and in my mind that will influence personal comfort levels in terms of what kind of DD I should expect from a potential trade.
For example, an RBOB Gasoline Crack Spread might have 20 day average trading range of 200 tics. A Eurodollar Dec 14-15-16 butterfly spread might have a 20 day average trading range of 2 tics.
When I look at historical data on the various markets and spread combinations, the technical studies in my trading system are also revealed and from that I try to anticipate how long my holding timeframes might be for a potential trade looking at the lifetimes of past signals and the resultant market moves that transpired. For example, the last signalled move in that RBOB Crack Spread might have had a trading range of 900 tics and a lifespan of eight days - while the last signalled move in that Eurodollar butterfly might have lasted eight months with a trading range of 28 full tics.
I hope that I haven't been too confusing or too simplistic. And I sincerely do hate the stock answer "that it all depends".
when I sold managed commodity accounts, it was right there in the prospectus, "50% drawdown and the account is closed and you get your money back."
and a lot of them got their money back
drawdowns for those of us that average down are much larger
also, how you define DD. Most in their first year define at x% from their starting initial investment
I measure mine from the old high, so I am in drawdown as soon as I put my next trade on, and 30% from the old high is a bitch, but not all that unusual (for me.)
and a lot of them got their money back
drawdowns for those of us that average down are much larger
also, how you define DD. Most in their first year define at x% from their starting initial investment
I measure mine from the old high, so I am in drawdown as soon as I put my next trade on, and 30% from the old high is a bitch, but not all that unusual (for me.)