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

  #13 (permalink)

Bangkok Thailand
 
 
Posts: 36 since May 2016
Thanks: 15 given, 17 received


Loop View Post
Hi Traders
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.

If you're following Bandy's way of doing it, then for the purpose of analyzing probable drawdowns you shouldn't use all the available data, but rather a sliding window over say the last two years or last 50 trades.

Moreover, in this sliding window you should give a higher weight to recent trades over older trades, through some sort of exponential averaging or something similar.

Reply With Quote
The following user says Thank You to TraderWalrus for this post: