Drawdowns

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Please explain to me about absolute drawdown and maximum drawdown

Thanks.

 

== Maximum difference of equity between a lowest equity point and its preceding highest equity point. Absolute is in currency value of your account, relative is in % of equity.

EDIT: and it's "absolute" and "relative" drawdown. Maximum just means that you're interested in the biggest one that happened.

 
Thank you Forexcoder, what is now the implication of a higher maximal drawdown on a trading strategy?
 

If you have a higher drawdown on a lower time interval (meaning you only test for a small period of time, compared to your testing timeframe - timeframe on which you run the EA) ie: only a few months testing interval on daily timeframe, this means that the strategy is more likely (has higher probability) to bring you long term complete loss on a account.

The higher the time interval you use for testing, (or trading), the more stable your strategy is with its drawdown, no matter how high that drawdown is BUT! you should always remember that unforeseen actions happen on forex all the time and you can never be too sure about your strategy's stability.

That's why you should never work with strategies that bring you really high drawdowns even in testing. Personally I use as long a timeframe for testing as I can, and I usually pick the strategy with highest profit at just below 20% relative drawdown. This usually gives me enough room for either increasing volume per trade or getting another EA to complement the first one going.

If I can find a strategy that has higher profit at even lower drawdown, so much the better.

 
forexCoder:

If you have a higher drawdown on a lower time interval (meaning you only test for a small period of time, compared to your testing timeframe - timeframe on which you run the EA) ie: only a few months testing interval on daily timeframe, this means that the strategy is more likely (has higher probability) to bring you long term complete loss on a account.

The higher the time interval you use for testing, (or trading), the more stable your strategy is with its drawdown, no matter how high that drawdown is BUT! you should always remember that unforeseen actions happen on forex all the time and you can never be too sure about your strategy's stability.

That's why you should never work with strategies that bring you really high drawdowns even in testing. Personally I use as long a timeframe for testing as I can, and I usually pick the strategy with highest profit at just below 20% relative drawdown. This usually gives me enough room for either increasing volume per trade or getting another EA to complement the first one going.

If I can find a strategy that has higher profit at even lower drawdown, so much the better.



Thanks for explanations. what did you see to me testing a strategy on H1 chart for a period of 2 months, how valid is the result to you?
 

I wouldnt let such a strategy trade automatically on my real account.

For my H1 timeframe I used 6 years of testing time. That might have been overkill, but I got the results I was looking for.

 
forexCoder:

I wouldnt let such a strategy trade automatically on my real account.

For my H1 timeframe I used 6 years of testing time. That might have been overkill, but I got the results I was looking for.



But 6 years of testing will take almost a day to complete.
 
What are you trying to do? I had a full optimization finished in 2 days for 6 years test time... and there was room for improvement. A simple back test should not be taking you nearly that amount of time (should be finished in seconds unless you're using some devastatinly über algorithms).
 
forexCoder:
What are you trying to do? I had a full optimization finished in 2 days for 6 years test time... and there was room for improvement. A simple back test should not be taking you nearly that amount of time (should be finished in seconds unless you're using some devastatinly über algorithms).

I have a slow computer but if you can help I can send you the code.
 
Send it, I'll have a look.
 
Hey, the EA is working fine on demo EURUSD H1. It is a trend EA.
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