A top-down approach to analyzing the past performance of a trading strategy involves evaluating the absolute drawdown, relative drawdown, and maximum drawdown together. How To Measure Drawdown?ĭrawdown can be expressed in absolute terms, relative terms, and maximum terms. If we consider the same trading example, the drawdown expressed in dollar terms was USD 1,000 because that’s how much the account equity dropped following the losing streak. Most often, the drawdown is expressed as a percentage, but it can also be recorded in dollar terms. Note* In this case, the maximum drawdown is also 10% since it’s equal to the maximum peak-to-trough decline.
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