What would you call an acceptable DD? | Forex Factory

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What would you call an acceptable DD?

  • #1
  • First Post: Jan 26, 2007 4:18pm Jan 26, 2007 4:18pm
What percentage of a balance would you consider to be an acceptable DD? What about a low DD? I don't have much experience, but I think 20% sounds high. I think 10% would be low. Many EAs are likely to have more than 20% DD. I would like some opinions on this so I'll know if I'm expecting too much when I look at the performance of different EAs. Thanks.
  • #2
  • Jan 26, 2007 4:38pm Jan 26, 2007 4:38pm
Quoting locutus
What percentage of a balance would you consider to be an acceptable DD? What about a low DD? I don't have much experience, but I think 20% sounds high. I think 10% would be low. Many EAs are likely to have more than 20% DD. I would like some opinions on this so I'll know if I'm expecting too much when I look at the performance of different EAs. Thanks.

for me, more than 20% makes me uncomfortable. There several reasons for this - 1) when you see your balance going down it can cause you to make bad decisions you know you should make cause you're trying to make it come back up. 2) it can "paralyze" your usual trading system rules because you are entering the red zone of survival, 3) finally, this game is not a game, but to make money. excessive draw down means you aint making money.

best to you,
  • #3
  • Jan 26, 2007 4:51pm Jan 26, 2007 4:51pm
Also, the larger the drawdown, the more difficult it is to recover. A 10% DD requires an 11.1% gain to recover. (By recover, I mean reaching your account's previous high point). Compare that to a 50% DD which requires a 100% return to recover. That's why some investors are still in the red after the 2000-2002 bear market in stocks.

Quoting KudzuFX
for me, more than 20% makes me uncomfortable. There several reasons for this - 1) when you see your balance going down it can cause you to make bad decisions you know you should make cause you're trying to make it come back up. 2) it can "paralyze" your usual trading system rules because you are entering the red zone of survival, 3) finally, this game is not a game, but to make money. excessive draw down means you aint making money.

best to you,
  • #4
  • Last Post: Jan 27, 2007 5:12am Jan 27, 2007 5:12am
The problem with drawdowns is that they are individually specific and you will never know what your maximum pain threshold is until you hit it. If you suspect 20% is too much, I'd be willing to bet that you'll be writhing in pain at 16%.

A big part of drawdowns is based on your system parameters. You need hard numbers from your system to know what is to be expected. But the unexpected always happens eventually and that's where the pain threshold kicks in.

There is no easy answer to your question. You're going to have to figure this out via experience.

Good luck with it.
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