What’s an acceptable max DD for a strategy?

[macintash]

Usefull answer. I agree there is a big difference between trading your own money and managing OPM. For OPM I would not feel comfortable on anything more then 10% DD, that’s absolutely max.

Quote from MattZ:

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.

 

[oldtime]

Quote from macintash:

Usefull answer. I agree there is a big difference between trading your own money and managing OPM. For OPM I would not feel comfortable on anything more then 10% DD, that’s absolutely max.

so how's that managing opm going for you?

are they happy with their returns?

 

[PaulVl]

20%-30% of one year total ##% return?

 

[macintash]

I am not managing othe OPM now. I do manage for a couple of partners some small amounts, and yes they are very happy

Quote from oldtime:

so how's that managing opm going for you?

are they happy with their returns?

 

[chipmunk]

oh...bollocks!

All these "super traders" who appear now.

If you could do that I'll re-mortage my hosue and you can trade for me....

Work on 2.5:1

25% gains 10.% D.D.'s
50% gains 20%+ DD's

etc..roughly is my rule of thumb.

Managed money......"remember big money is more concerend with the return OF their money than the return on their money"

But you could set up a high risk fund. Millionaires gamble in Vegas why not in the financial markets?

Roll up, roll up....winner takes all. Lose 50% for the chance to mdouble it?"
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i think it is best to keep your DD below 7%, while generating returns of about 40% p.a.

 

[chipmunk]

I think the vast majority of "investors" would be p**'d as hell at 25%+ losses.

Especially if they were paying you for this privileage.

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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

 

[bone]

If you're a CTA with managed accounts from what I have seen a 10 % drawdown in a month will doom you in terms of client redemptions and mass exodus. I have had several CTA's tell me that they strongly entertain the notion of ending the client business and return back to trading their own capital.

Clients just do not want any risk post-2008. That just seems to be the fact of life in terms of managed accounts.

Personal capital DD's is strictly personal preference in terms of emotional and pain tolerance levels.

 

[macintash]

I am not a money manager, and I wasn’t talking about 10% DD in a month. I was referring to daily peak to valley DD, with an absolute cap of 10% DD in a worst case scenario. (Usually in order to be able to figure out a max DD in a worst case scenario, I would want to see a max 4-5% DD in general) I think that’s reasonable.

Quote from bone:

If you're a CTA with managed accounts from what I have seen a 10 % drawdown in a month will doom you in terms of client redemptions and mass exodus. I have had several CTA's tell me that they strongly entertain the notion of ending the client business and return back to trading their own capital.

Clients just do not want any risk post-2008. That just seems to be the fact of life in terms of managed accounts.

Personal capital DD's is strictly personal preference in terms of emotional and pain tolerance levels.

 

[Wide Tailz]

Quote from macintash:

any opinions here?

Things start to get asymmetric at 25% DD (which requires 33% gain to recover).

A back test with different position sizes will show this effect as the strategy peaks and then implodes as leverage is added.

It's a subjective topic that is very personal. Not everyone recovers from a 60% head shot.....

 

[Wide Tailz]

Quote from bone:

Clients just do not want any risk post-2008.

This is great newz, thanks for the info.

Lots of room now for moderate DD strategies, since they are off limits to CTAs