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defining drawdown

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 djarum11 
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for journaling/reporting purposes, what is session drawdown?

- the absolute highest equity high for the session minus the current equity (if lower)?

- or the largest 'dip' during the session (relative, peak-to-valley, per swing)?

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 Ming80 
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both are useful to track across anytime frame or your whole trading career.

one identifies the current drawdown (current equity) which you track to know how much more you need to crawl back to the highest equity peak.

The other which is more important is the max drawdown. This tells you the maximum pain you had to endure or how close to ruin you came to. The max drawdown in relation to some performance stats hangs like a dead albatross on your neck whereby your risk adjusted ratio is forever measured against the max drawdown you suffered. e.g The MAR Ratio = CAGR / Max DD.

For journaling purposes you can track the current drawdown and at the top is just a single number which is the max drawdown.

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 djarum11 
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are both measured in terms of acct balance? i cannot seem to use % as a way to measure DD *within* a session's stats. one can however measure in absolute $, say, the acct is $x below zero or $x below its peak equity for the session.

but percentages don't make sense for recording the trades of the current session. e.g. if the session starts with a loss, then drawdown is 100% until the session turns positive, and this is awkward. the alternative is to always see drawdown as a % of acct balance, which definitely makes sense across the long term.

it concerns me how far the acct is the acct is its peak equity, but also within a session how much DD is experienced. this latter one is is tricky and can only be measured in absolute $ i think.

could you define "The MAR Ratio = CAGR / Max DD" please?

thank you

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 grausch 
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djarum11 View Post
are both measured in terms of acct balance? i cannot seem to use % as a way to measure DD *within* a session's stats. one can however measure in absolute $, say, the acct is $x below zero or $x below its peak equity for the session.

Current equity drawdown = MaxEquity - CurrentEquity
Current equity drawdown (expressed as %) = (MaxEquity - CurrentEquity) / MaxEquity

For the maximum drawdowns, you would just use your lowest equity during a particular session.


djarum11 View Post
but percentages don't make sense for recording the trades of the current session. e.g. if the session starts with a loss, then drawdown is 100% until the session turns positive, and this is awkward. the alternative is to always see drawdown as a % of acct balance, which definitely makes sense across the long term.

Your drawdown will only be 100% if your account goes to zero. If you get to that number, then your math is wrong or your account empty.

Your drawdowns should be expressed as %. Every day you start with a different account balance. If you try and force $-amounts into your drawdown expectations, how will you adjust if your account is down 50%? Accepting the same $-drawdowns does not make sense in this case. %-drawdowns automatically adjust for changes in your account balance.


djarum11 View Post
it concerns me how far the acct is the acct is its peak equity, but also within a session how much DD is experienced. this latter one is is tricky and can only be measured in absolute $ i think.

No, the math provided above will allow you to measure session drawdowns in %-terms.


djarum11 View Post
could you define "The MAR Ratio = CAGR / Max DD" please?

thank you

MAR = Managed accounts review - I think it used to be a newspaper tracking CTAs. They developed this ratio which is now known as MAR.

CAGR = Compounded annual return

If you have annual returns of 20% p.a. and your max drawdown over your career is 40%, then your MAR is 0.5 (that is usually where the best fund managers reside).

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