About Drawdown

[Ihsan Tereci]

Hello. I'm backtesting an EA on metatrader. When I look at the results, I notice 2 options:

1- the most drawdown

2- relative drawdown

what is the difference between them?

[Sergey Golubev]

Just about drawdown - 

Forum on trading, automated trading systems and testing trading strategies

Is Relative DrawDown terminology identical to Absolute Draw Down ?

Michele Lazzarini, 2014.08.09 02:16

Absolute: compared to initial balance

Maximal: largest drawdown (measured in currency)

Relative: largest relative drawdown (measured in %)
This because you can have an early drawdown big in % but not in currency.
The Maximal can hide a largest drawdown in % happened earlier.

Relative is an index of resistance to drawdowns and can be used to compare different results.

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To assess performances i find useful this expression:

Efficacy = Net Profit / Gross Profit

this can be used combined with Relative Drawdown, to assess the real reliability of a strategy:

Reliability = Efficacy / Relative Drawdown

Forum on trading, automated trading systems and testing trading strategies

Maximum Drawdown

Sergey Golubev, 2016.09.28 08:20

This is what I found:
...

There are many 'drawdowns' in the world:

• Absolute
• Maximal
• Relative
  
• Maximum drawdown on equity open trades
• may be more.

I am not sure which kind of drawdown is used for the signals (I think, it may be 'Maximum drawdown on equity open trades' as maximum possibe drawdown) but you can read the following:

Article: What the Numbers in the Expert Testing Report Mean

Small thread: Is Relative DrawDown terminology identical to Absolute Draw Down ?

[Ihsan Tereci]

Sergey Golubev #:

Just about drawdown - 

So which one should I base it on? Which gives the real result? Absolute or relative ?

[Sergey Golubev]

Ihsan Tereci #:

So which one should I base it on? Which gives the real result? Absolute or relative ?

I do not know ... it is up to you.
As I know - the traders are using some tools/indicators for MT4 and MT5 to show absolute drawdown on equity open trades,
for example: post #367

And you can read this article too - What the Numbers in the Expert Testing Report Mean