Is it possible for tester to report max relative drawdown, instead of absolute?
swacc,
I didn't know that's how max drawdown % works, but I already thought it was an unreliable indicator of equity volatility. I agree with your suggestion: max drawdown as % of the balance at the time of the drawdown would be a better indication of max drawdown in the Tester Report.
I didn't know that's how max drawdown % works, but I already thought it was an unreliable indicator of equity volatility. I agree with your suggestion: max drawdown as % of the balance at the time of the drawdown would be a better indication of max drawdown in the Tester Report.
I think that this is an important question, but there is still no answer...
Relative drawdown measured in percents. Maximal drawdown in percents presents in the report.
Slawa, thank you for your answer.
However, it only confirms what I have written in my first post. Please, see this sketch:
[img] http://putfile.com/pic.php?pic=5/12206590870.gif&s=x402 [/img]
The tester reports the largest absolute drawdown. Max rel. drawdown is calculated for that exact largest abs. drawdown, which might not be the best thing to do (see the sketch).
I think that the largest absolute drawdown doesn't carry too much information. 1.000$ drawdown for 10k and 100k account has substantially different meaning.
On the other hand, 10% drawdown is always 10%, no matter the account balance.
However, it only confirms what I have written in my first post. Please, see this sketch:
[img] http://putfile.com/pic.php?pic=5/12206590870.gif&s=x402 [/img]
The tester reports the largest absolute drawdown. Max rel. drawdown is calculated for that exact largest abs. drawdown, which might not be the best thing to do (see the sketch).
I think that the largest absolute drawdown doesn't carry too much information. 1.000$ drawdown for 10k and 100k account has substantially different meaning.
On the other hand, 10% drawdown is always 10%, no matter the account balance.
What the formula for relative drawdown do you suggest?
I think that for each local maximum, the relative drawdown should be calculated:
(Maximal Peak - next Minimal Peak)/Maximal Peak * 100%
Then, when the testing is finished, maximum of all of this relative drawdowns should be found and reported.
Let's assume this extreme backtesting scenario:
1. you start with 10k
2. you have a number of bad trades and loose 8k (80% of balance)
3. in time you get to 100k
4. again - bad trades and you loose 80k (80% of balance)
5. after several years you get to 10.000.000
6. one bad trade (but with more lots) and you loose 100k (but only 1% of balance)
Current tester would report 100k as max abs dd and 1% as max rel dd.
So, you think you have a system that will make you rich in a couple of years with no risk at all (max dd only 1%)!
You start trading it and in first month you loose 80% of your capital. You wouldn't know what hit you! Would you continue trading it? Would you let your capital flow away? What would you think about Metatrader (although it is not its fault, people tend to blame someone else for their failures)?
On the other hand, if tester had reported the max relative drawdown (as suggested above) you would have known from the begining that the system is potentialy very profitable but that you can expect enormous drawdowns.
I think that most of the traders should and do think in percentages - how much % of the capital they are willing to risk, how much % a year/month they want to earn, ...
As I am one of them, this max rel dd is a very important information.
Currently, when I'm doing backtesting, I am writting account equity to a file and then I import that file to another application to analyze it and find not only the maximum drawdown but to draw the entire drawdown curve for the whole backtesting period (if you are interested I will be more than happy to send you a sample and discuss more on this topic)
Sorry for the lengthy post...
(Maximal Peak - next Minimal Peak)/Maximal Peak * 100%
Then, when the testing is finished, maximum of all of this relative drawdowns should be found and reported.
Let's assume this extreme backtesting scenario:
1. you start with 10k
2. you have a number of bad trades and loose 8k (80% of balance)
3. in time you get to 100k
4. again - bad trades and you loose 80k (80% of balance)
5. after several years you get to 10.000.000
6. one bad trade (but with more lots) and you loose 100k (but only 1% of balance)
Current tester would report 100k as max abs dd and 1% as max rel dd.
So, you think you have a system that will make you rich in a couple of years with no risk at all (max dd only 1%)!
You start trading it and in first month you loose 80% of your capital. You wouldn't know what hit you! Would you continue trading it? Would you let your capital flow away? What would you think about Metatrader (although it is not its fault, people tend to blame someone else for their failures)?
On the other hand, if tester had reported the max relative drawdown (as suggested above) you would have known from the begining that the system is potentialy very profitable but that you can expect enormous drawdowns.
I think that most of the traders should and do think in percentages - how much % of the capital they are willing to risk, how much % a year/month they want to earn, ...
As I am one of them, this max rel dd is a very important information.
Currently, when I'm doing backtesting, I am writting account equity to a file and then I import that file to another application to analyze it and find not only the maximum drawdown but to draw the entire drawdown curve for the whole backtesting period (if you are interested I will be more than happy to send you a sample and discuss more on this topic)
Sorry for the lengthy post...
So, Slawa, what do you think?
Does it make sense?
Does it make sense?
Is there too hard see initial deposit and maximal drawdown?
Sorry, not sure I understood your question.
I'm talking about backtesting - it's not about starting deposit and ending deposit. It is about what percent of your deposit you would've lost if you had traded this system during the backtesting period.
Max % of account lost, not max $ lost! Huge difference.
For every trader, it is useful information to see that he could loose at most xx% of his account.
Could you please read the backtesting scenario in my long post above?
This is not a feature request. I already have this (and more) implemented and use it.
This is just a proposition from the traders point of view on how you could improve MT for all the traders that do not have the tools I do.
MT4 is a really magnificent piece of software and I'm just trying to "give back" part of what I got from it! Just trying to help.
I'm talking about backtesting - it's not about starting deposit and ending deposit. It is about what percent of your deposit you would've lost if you had traded this system during the backtesting period.
Max % of account lost, not max $ lost! Huge difference.
For every trader, it is useful information to see that he could loose at most xx% of his account.
Could you please read the backtesting scenario in my long post above?
This is not a feature request. I already have this (and more) implemented and use it.
This is just a proposition from the traders point of view on how you could improve MT for all the traders that do not have the tools I do.
MT4 is a really magnificent piece of software and I'm just trying to "give back" part of what I got from it! Just trying to help.
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So, tester indeed reports max absolute drawdown but it would be more interesting to see what was max drawdown in terms of account balance percentage.
Is it possible?
Regards,
Swacc