Max Drawdown < Largest Losing Trade

[Beauregard]

Hi

How is it possible, that Max Drawdown is smaller than the largest losing trade? I have in my backtesting result:
Max Drawdown: -11.54%
Largest Losing Trade: -15.22%

Regards
Andre

[NinjaTrader_Brett]

Hello,

Thank you for your note.

Its possible because you had profits before the largest losing trade. Lets say for example your strategy made only 2 trades for simplicity sake.

For your max drawdown to be %-11.54 and your last trade was %-15.22 this means that the trade before it was a winner for %3.68 which would yield a max drawdown of %-11.54.

Let me know if I can be of further assistance.

[Beauregard]

Hi

Thanks for your explanation. If Max. Drawdown is as you explain, then the following seems to be strange.
I have a strategy with a max drawdown of -16.63%.
The max. loss of consecutive trades is -3.16% and -10.35%. This makes -13.51%. The trade following these 2 trades has a plus of 2.55%, but a MAE of 2.85%. So, in the worst case we have -13.51% and the 2.85%, which makes 16.36%.
Where comes the number -16.63% from?

thanks & regards
Andre

[NinjaTrader_Brett]

Depends on the other trades. Other trades will also be included in the calculations for this number, losers and winners. If you need us to check your account performance for accuracy please send a note to support at ninjatrader dot com and provide screenshots of your account performance section including your trades tab and also please mention this forum post.

To send a screenshot press Alt + PRINT SCREEN to take a screen shot of the selected window. Then go to Start--> Accessories--> Paint, and press CRTL + V to paste the image. Lastly, save as a jpeg file and send the file as an attachment.


Let me know if I can be of further assistance.

[Beauregard]

thanks for the feedback. I think I misunderstood max. drawdown.
What I am looking for: What is the max. consecutive loss in my strategy. This information is a risk measure for me, because it tells me how much leverage I can take.
Example:
Trade 1: plus 10%
Trade 2: minus 5%
Trade 3: first goes down 3% (MAE) and ends with a plus of 2%
--> "Max drawdown" is 8% (5%+3%)

Is there any way to measure that?

[NinjaTrader_Brett]

No Problem.

Here is a list of all the measurements done by NinjaTrader.

http://www.ninjatrader-support.com/HelpGuideV6/AverageETD.html

Please read through all the statistics definitions to see if one will fit your needs.

[Beauregard]

Drawdown misleading?

For your max drawdown to be %-11.54 and your last trade was %-15.22 this means that the trade before it was a winner for %3.68 which would yield a max drawdown of %-11.54.

Hi
I want to come back again to my question I asked some time ago and your answer.
Drawdown is for me a statistic number, which shows me the maximal loss I would have had in the past with my strategy. In the example you have given above, it should be -15.22%, -11.54% is quite misleading. Why? Let's look at other numbers:
First Trade: 500%
Second Trade: -100%.
According your calculation, Max Drawdown is 0%. But in really I am bankrupt, when I start trading my system with the 2nd trade.....
If I am reading in books and internet, I have the understanding the drawdown is a statistic number as I describe it.
Do I something not understand?
Do you now have such a statistic number, which seems quite vital for the assessment of a trading system?

thanks

[NinjaTrader_Brett]

Hello,

I believe my statement is incorrect. Not to sure what I was thinking when I typed that.

Please see the below for the best explination.

The maximum drawdown statistic provides you with information regarding the biggest decrease (drawdown) in account size experienced by your strategy. Drawdown is often used as an indicator of risk.


As an example, your account rises from $25,000 to $50,000. It then subsequently drops to $40,000 but rises again to $60,000. The drawdown in this case would be $10,000 or -20%. Take note that drawdown does not necessarily have to correspond with a loss in your original account principal.

Revisiting this again for clarity:

Take your scenario as before:

Trade 1: plus 10%
Trade 2: minus 5%
Trade 3: first goes down 3% (MAE) and ends with a plus of 2%

Max DrawDown in this case would be 5% as this is the Keyword Single largest drawdown on the account is what is listed for Max Draw Down.

Max Draw down does also include MAE.

or here:

First Trade: 500%
Second Trade: -100%.


Max draw down would be -100% with only these 2 trades.



So to revisit your orginal question.

When your dealing with percentages these percentage ammounts can change depending on the value of the contract this is where it can get tricky if your not carefull.

To better visuallize I would switch this to Point mode to be able to better visualize that way it is an apples to apples comparison.

Let me know if I can be of further assistance.

[Beauregard]

Hi
thanks for the reply. I completely agree, that the Max Drawdown is used as an indicator of risk. But as it is implemented in NT, it does not reflect the risk. Let's look at the discussed example:
Trade 1: plus 10%
Trade 2: minus 5%
Trade 3: first goes down 3% (MAE) and ends with a plus of 2%

You wrote:

Max DrawDown in this case would be 5% as this is the Keyword Single largest drawdown on the account is what is listed for Max Draw Down.

The Max Drawdown in this example is 8%, and not 5%, because this is the real risk I have. Why? Let's assume I start with my strategy with Trade 2. I loose 5% of my equity. With Trade 3 I loose 3% of my equity. Therefore I lost 8%, and not 5%.

Some authors even say, that you should consider the drawback in trade 1. Example: Trade one goes first up 15%, then down 5% so that it ends with 10%. The difference between the high and the low over these three trades is then even 20%. Because the capital goes down 20%. In fact, this is not relevant for the investor, because the investments is started with a trade and not in the middle of one.
regards
Andre

[NinjaTrader_JoshP]

Andre,

Drawdown is on a trade by trade basis. Each trade has a max drawdown of its own. What you are looking for is more of an "average" with the term used loosely. I agree with you that there can be value in such an approach, but the way NT reports it is really broken down to each individual trade and not across multiple trades. As such, I have added your suggestion onto our feedback list for future considerations. Thank you.