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Drawdown % vs. Profit

  • Poll

  • Which system would you prefer to use?
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  • Post #1
  • Quote
  • First Post: Feb 22, 2007 2:55pm Feb 22, 2007 2:55pm
I was just wondering what people's general opinions were on drawdown vs. profit.

For example, would you rather use a system that made $5000 last year with a 6% drawdown?...

... or a system that made $8500 last year with a 21% drawdown?

Personally I would think that the first option would protect your account better but then again, who am I to say??

Any constructive opinions welcome!!

Party on!!

Daemien
Quoting Daemien
I was just wondering what people's general opinions were on drawdown vs. profit.

For example, would you rather use a system that made $5000 last year with a 6% drawdown?...

... or a system that made $8500 last year with a 21% drawdown?

Personally I would think that the first option would protect your account better but then again, who am I to say??

Any constructive opinions welcome!!

Party on!!

Daemien
I think you will get alot of different answers that reflect an individual's risk tolerance. Generally speaking the higher the drawdown the higher the potential upside. I don't think it is a case of one system being better than the other. The longer term trend following systems will experience drawdown periods that could be greater than 21%. Systems that trade less volatile pairs would not be happy with a 21% drawdown. I know of one particular hedge fund that tolerates drawdowns of 25%. I know another one that has a drawdown limit to a maximum of 5% in any given month when all open positions are liquidated. A more personalised approach would be to look at what your expectations are from a particular trading system and see if that fits into your risk profile.

Monaco
Hi Monaco, thanks for the reply!

I guess I was just curious about what people's risk tolerances were. I am actually surprised that the lower risk tolerance is getting more attention - I figured most here would have gone for the riskier system with more potential profit.

Take care,

D.



Quoting Monaco
I think you will get alot of different answers that reflect an individual's risk tolerance. Generally speaking the higher the drawdown the higher the potential upside. I don't think it is a case of one system being better than the other. The longer term trend following systems will experience drawdown periods that could be greater than 21%. Systems that trade less volatile pairs would not be happy with a 21% drawdown. I know of one particular hedge fund that tolerates drawdowns of 25%. I know another one that has a drawdown limit to a maximum of 5% in any given month when all open positions are liquidated. A more personalised approach would be to look at what your expectations are from a particular trading system and see if that fits into your risk profile.

Monaco
Quoting Daemien
I was just wondering what people's general opinions were on drawdown vs. profit.

For example, would you rather use a system that made $5000 last year with a 6% drawdown?...

... or a system that made $8500 last year with a 21% drawdown?

Personally I would think that the first option would protect your account better but then again, who am I to say??

Any constructive opinions welcome!!

Party on!!

Daemien
Unless you have significant sums to play with it is just about impossible to make big sums in forex without leveraging. The unleveraged %age drawdown then becomes a significant factor because your account drawdown becomes the unleveraged %age drawdown multiplied by the leverage factor. So a 20% drawdown on 5 times leverage will send your account broke regardless of how much profit it may have made prior to that.

In summary, I therefore feel you are asking the wrong question. It should ask what is the maximum leverage I can afford so that when I experience my maximum unleveraged drawdown my account drawdown will still be acceptable to my style of trading.
i let drawdown, if the position is still near the yearly average,
market goes up and down, if it goes up , more factor will drag it down.....
unless there is disaster or political thing, gnp is the key
i am looking for a system with Max DD should not be more than per month average return. One more important all 10% should not be by one ot two trades. max per trade 2 %.

Thanks
Well, this is an equation with too many variables that should be taken into consideration.
Definitely would prefer the conservative option with bigger starting balance, lower DD and relatively lower annual return.
preserving capital is the number 1 rule so a 21% drawdown has bust written all over it
Are we talking about an EA or a trading strategy?

I'd take the less risk option for an EA and the higher risk option for a trading strategy. The EA has added risk in that it's a dummy-system. A trading strategy performed by a person has the added benefit of adaptability. During that 21% drawdown you'll be sitting there thinking "WHAT DID I MISS!?" and building a better system.

I had a 20% drawdown just yesterday from the USD rally Before Trump's speech. I spent the entire day learning from my mistake and trying to decide whether it would be prudent to abandon ship or hang on tight.

I eventually took the loss and used the knowledge/insight from that time to pull 25% gains today.
"The fun is in the hunt. Not the kill."
Quoting Redeflect
Are we talking about an EA or a trading strategy? I'd take the less risk option for an EA and the higher risk option for a trading strategy. The EA has added risk in that it's a dummy-system. A trading strategy performed by a person has the added benefit of adaptability. During that 21% drawdown you'll be sitting there thinking "WHAT DID I MISS!?" and building a better system. I had a 20% drawdown just yesterday from the USD rally Before Trump's speech. I spent the entire day learning from my mistake and trying to decide whether it would be prudent...
25% in a single day! how much of your account are you risking per trade?
  • Post #11
  • Quote
  • Edited 5:29pm Mar 1, 2017 5:17pm | Edited 5:29pm
Generally; as little as possible (roughly 5-10% and up to 90%). I attempt to maintain very strict entry criteria. I then martingale my position if it drifts away from me because a losing trade is just a winning trade at an even better price if you're right and a learning experience if you're wrong. If it starts to drift to critical levels I then begin to ponder if I was wrong or I missed something and then I search for my mistake. If none was found then I can reliably trust that I haven't entered the Death Sequence yet and I simply misjudged the drift-rate.

Worst-case scenario; I made a bad trade, I get a margin call, and I lose 10% of the account I reserved as a buffer (after I've finished scaling in). Best-case scenario; I just spent so long in a losing trade that I now know the currency pair inside-and-out. I've so thoroughly analyzed it that I'm just ready and waiting for my opportunity to come back and pillage the shit out of it... while simultaneously moving on to greener pastures.
"The fun is in the hunt. Not the kill."
  • Post #12
  • Quote
  • Last Post: Mar 1, 2017 5:57pm Mar 1, 2017 5:57pm
Quoting Monaco
{quote} .......... Generally speaking the higher the drawdown the higher the potential upside. ...... Monaco
How do you figure this?? Maybe you're on a road to financial disaster.
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