Drawdown by balance. Votes Results
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Drawdown by balance. Discussion
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jpkfox

Miembro desde Aug 02, 2010  51 mensajes jpkfox Oct 20 2010 at 22:43 (editado a las Oct 20 2010 at 22:50 )
Why is drawdown calculated by equity? I think it should be done according closed trades which is balance. Or if equity goes negative then by equity. But if equity is positive I think its wrong to take it from there. Like if you look at my account: Its been going very well for and I know that my *real* drawdown was NOT 55% like its here on myfxbook. It has been very small this year, like 20% or something...

The way I trade is that I get those very big winners (up to +1000 pips). But because its done by daily candles, it can easily drop many hundreds down from the top. But its all *running winners*, so I should not be punished about these drops because I have not even stopped those trades.

Imagine situation where I start trading with $1000. I do my first trade. It goes takes balance first to $3000 and then goes back to $1500 where I take profits. Now, I made 50% profit with my *first* trade, and the balance never went negative. So this is EXCELLENT trading obviously. But if you take drawdown figure from equity (like its done here on myfxbook) you get results for this trader:

Total profit made: 50%
Biggest drawdown: -50%

Now, if these two figures is the only thing I know about this trader I would never use this trader because 50% drawdown would be massive. But in reality the account went never negative, so this trader is excellent. So drawdown taken from equity can be very deceiving.

So please is it possible to do this according to balance?

Let me summarize how I think it should be:
Drawdown is minimum of balance and equity. So if balance gives the smallest value then balance is used... if equity is below the balance then equity value is used to calculate drawdown. So always when equity is above balance it is ignored what comes to drawdown calculations.

Freedom is a paradox; To be free to play beautiful music, you have to submit to the rules of music.
jpkfox

Miembro desde Aug 02, 2010  51 mensajes jpkfox Oct 20 2010 at 22:50 (editado a las Oct 20 2010 at 22:51 )
-

Freedom is a paradox; To be free to play beautiful music, you have to submit to the rules of music.
TradeSmarter

Miembro desde Oct 06, 2010  22 mensajes TradeSmarter Oct 26 2010 at 12:43
Doing draw down according to balance makes absolutely no since.

Apparently this fellow as the same ideas of many banks.

Meaning, let's not show the true value of the accounts and make it seem that we are doing better than we really are.

Additionally, as we all know. 4X trading is M2M. People should be looking at their equity and basing all their decisions off that number alone. Balance actually means very little in the real world of 4X trading. What matters is how much your account is worth at a given point of time.....

jpkfox

Miembro desde Aug 02, 2010  51 mensajes jpkfox Oct 26 2010 at 14:06 (editado a las Oct 26 2010 at 14:34 )
'Doing draw down according to balance makes absolutely no since. '

I did not say it should be done according to balance! I said: 'minimium of balance/equity'. Its totally different...

'Balance actually means very little in the real world of 4X trading. '

I normally take my profits according to *balance*, not according to equity, because equity does not tell anything about *closed trades*. It tells the situation about half-finished trading.

Balance gives the real picture about how system has performed. For example, when I backtest my systems, I never look how hight the trades went temporary... that has no meaning at all. All what matters is that what is the result after the trade was closed. If my trade went first to +500 and then comes back to +100, then +500 has no meaning at all to me... I did not get +500 in reality.

'What matters is how much your account is worth at a given point of time.....'
No, this is NOT what matters to me.. because closed trades is the REAL picture about the systems, becouse you dont stop trading suddenly. I dont stop my trading suddenly, so equity does NOT tell how my systems perform. I have to wait until the trades are CLOSED to know how they performed.
   I dont record my equity values onto my Excel sheet, but I do record my balance values (=closed trades). Equity has no value to me because I have fixed stop loss points. I KNOW that my maximum loss is X-pips, so I know before entering the trade that the drawdown will be small for running trades.
   What you say could have some value, if you trade only like 2 weeks and then totally stop trading and start to be a factory worker :) ... because then current equity would matter. But I dont stop trading...


Did you understand my example? Let me repeat it, and you tell me if this trader is good or bad. Its simple 'good' or 'bad' asnwer.

- Trader starts trading.
- He goes long EUR.
- He trades long term trading so that trade lasts 1 month
- His equity goes immediately positive.
- His (running) trade goes first to +1000 pips after 15 days (so his quity shows +1000 pips value and balance is zero).
- When trade is running at +1000 he *moves his stop loss* to +500. So he has now SECURED +500 pips. Remember, his balance/equity was never negative.
- EUR then drops and his stop loss gets hit.
- Final result after the first trade:
   Total profit: +500 pips
    Balance: +500 pips
    Biggest Drawdown: -50%
   And balance/equity was never negative

Now the question to you: Did this trader start well or badly?

Looking forward your answer :) .


Freedom is a paradox; To be free to play beautiful music, you have to submit to the rules of music.
ECMartin

Miembro desde Sep 08, 2010  46 mensajes Martin (ECMartin) Oct 26 2010 at 22:53

jpkfox posted:
- Trader starts trading.
- He goes long EUR.
- He trades long term trading so that trade lasts 1 month
- His equity goes immediately positive.
- His (running) trade goes first to +1000 pips after 15 days (so his quity shows +1000 pips value and balance is zero).
- When trade is running at +1000 he *moves his stop loss* to +500. So he has now SECURED +500 pips. Remember, his balance/equity was never negative.
- EUR then drops and his stop loss gets hit.
- Final result after the first trade:
   Total profit: +500 pips
    Balance: +500 pips
    Biggest Drawdown: -50%
   And balance/equity was never negative

In this situation, the drawdown wouldn't be -50%. It would be 0%.

A hard thing about business is minding your own.
jpkfox

Miembro desde Aug 02, 2010  51 mensajes jpkfox Oct 27 2010 at 06:06 (editado a las Oct 27 2010 at 06:06 )
ECMartin posted:
  

In this situation, the drawdown wouldn't be -50%. It would be 0%.


Yes, I agree, but the point is that is we used equity as a measure to calculate the drawdown then it would be actually 50% in this case, isnt it? Because equity uses the data from running trades as well isnt it? And myfxbook uses equity?

Freedom is a paradox; To be free to play beautiful music, you have to submit to the rules of music.
ECMartin

Miembro desde Sep 08, 2010  46 mensajes Martin (ECMartin) Oct 27 2010 at 06:22

jpkfox posted:
    ECMartin posted:
  

In this situation, the drawdown wouldn't be -50%. It would be 0%.


Yes, I agree, but the point is that is we used equity as a measure to calculate the drawdown then it would be actually 50% in this case, isnt it? Because equity uses the data from running trades as well isnt it? And myfxbook uses equity?

No offense, but I think you are completely missing the point. If the position is never negative, the drawdown counted by equity would be 0%. Only if the position went negative for some time, there would be drawdown equal to the loss.

A hard thing about business is minding your own.
jpkfox

Miembro desde Aug 02, 2010  51 mensajes jpkfox Oct 27 2010 at 10:03 (editado a las Oct 27 2010 at 10:08 )
:) , No I did not miss the point. The point was originally, that myfxbook seems to calculate the drawdown using purely/only equity. And then in my example I tried to demonstrate how this kind of calcution leads to strange situations (you get 50% drawdown from you winners!).

In my example I wanted to show how *wrong* it can go if equity is used. So, I did *not* say that in reality there was 50% drawdown in my example. Its only 50% if somebody uses equity to measure DD.

 Please read the whole article I wrote before on this thread and you can see that what you just wrote is exactly what I am saying. I said exactly what you just now wrote (that equity should be used on drawdown only if it goes negative)...

You read only my last message? :) Please see my first 2 messages....

Freedom is a paradox; To be free to play beautiful music, you have to submit to the rules of music.
ECMartin

Miembro desde Sep 08, 2010  46 mensajes Martin (ECMartin) Oct 27 2010 at 11:43

jpkfox posted:
    :) , No I did not miss the point. The point was originally, that myfxbook seems to calculate the drawdown using purely/only equity. And then in my example I tried to demonstrate how this kind of calcution leads to strange situations (you get 50% drawdown from you winners!).

In my example I wanted to show how *wrong* it can go if equity is used. So, I did *not* say that in reality there was 50% drawdown in my example. Its only 50% if somebody uses equity to measure DD.

 Please read the whole article I wrote before on this thread and you can see that what you just wrote is exactly what I am saying. I said exactly what you just now wrote (that equity should be used on drawdown only if it goes negative)...

You read only my last message? :) Please see my first 2 messages....


Oh, I apologize, you are right. I did read & understand everything, but I thought you understood wrong how MyFXBook counts it, but now looking at my account DD, it was me who understood wrong :-)

+ for me then, really doesnt make any sense the way it's done now.

A hard thing about business is minding your own.
jpkfox

Miembro desde Aug 02, 2010  51 mensajes jpkfox Oct 27 2010 at 11:57
ok, np.

Ye, I have like 50% drawdown for this year here even though its been going excellent this year. According to my calculations I have had about -28% DD max this year.

Its a very important thing, because now people think that I have a huge DD which is not really true. And thus I came from the top to the bottom :( (before this I used to be one of the best traders here with about 30%DD... suddenly, after this change by myfxbook I am at the bottom.). So something has to be done. Its better to have no DD figure at all than having it this way.

Freedom is a paradox; To be free to play beautiful music, you have to submit to the rules of music.
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