Drawdown Monte Carlo Increase over time PROBLEM | Traders Hideout

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Drawdown Monte Carlo Increase over time PROBLEM

  #13 (permalink)

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

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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.

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