![]() The maximum drawdown is the maximum peak-to-trough decline in your account balance. ![]() The absolute DD and max DD are fixed drawdowns. However, as soon as the losing trades are closed, that drawdown becomes a fixed drawdown. A floating drawdown is the farthest distance against your position that the price has moved while the forex trade was active. Drawdowns are temporary as long as you hold onto your position and only become realised once your stop loss is triggered or you close your position.įor example, the sums of all open positions that are right now losing money constitute the floating drawdown. The different types of drawdown can help us measure the potential loss of capital incurred if we used that particular trading system.Ī relative drawdown is your unrealized loss. A top-down approach to analyzing the past performance of a trading strategy involves evaluating the absolute drawdown, relative drawdown, and maximum drawdown together. 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.ĭrawdown can be expressed in absolute terms, relative terms, and maximum terms. 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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