Drawdown Monte Carlo Increase over time PROBLEM | Traders Hideout


futures.io - futures trading strategies, market news, trading charts and platforms


Traders Hideout


Discuss day trading practices and futures trading strategies on this forum for all markets. This forum is also for discussing and reviews for brokers, data feeds, and commercial or third party add-ons




 

Drawdown Monte Carlo Increase over time PROBLEM

  #1 (permalink)

Sydney
 
Trading Experience: Intermediate
Platform: Multichart
Favorite Futures: Gold
 
Posts: 26 since Aug 2016
Thanks: 22 given, 4 received

Drawdown Monte Carlo Increase over time PROBLEM

Hi Traders

after extensive testing using Monte Carlo mathematically correct for Drawdown analysis I see only bad news.

Using random selection with replacement to create 200 trades long series of cumulative return (More than 10 000 of them) and from this extracting the distribution for drawdowns it is very hard to come below very big drawdown with any system!!

As we know from Howard Bandy, Drawdown increase over time. This increase follow a diffusion equation. Square root over period.

This is really bad news because any test over longer periods will have DD of over 50% for ANY system. The only way to feel good and get it lower is to test shorter periods. (Much like peeing if its cold, keeps you warm a minute but then...)

The law of large numbers is a strong force!

Is there anyone who have seriously looked into this big problem for any and all system and can recommend solution, literature or other sources of information?

Kind regards

Loop

Reply With Quote