MattParticipant03/03/2015 at 4:56 pmPost count: 10
I am really impressed with all your strategies, detail, and research. Thank you. But I have a question concerning drawdowns.
In looking at the monthly drawdown for the various strategies, it appears the drawdown data is only reported monthly – on the first of each month. Is there a way to get maximum drawdown on a continuous basis? That is, the max drawdown may occur mid month, for example, but we can’t see that. The reason this is important is it is kind of random to look at just 12 data points per year and does not really represent the max drawdown. I think this info would be important to others as well. Thank you.
MattParticipant03/05/2015 at 6:16 pmPost count: 10
Got it! So it looks like as long as I keep my time window at 3 months or less, the chart is showing daily drawdown. As I increase the time window it seems to go to weekly drawdown and then eventually monthly. But it looks like I can get the max daily drawdown by keeping the time window at 3 months and then sliding it to any year to see the max drawdown on a DAILY basis. Correct?
VangelisModerator03/07/2015 at 3:49 amPost count: 165
Sorry for the delay. Our partner/chartist guru/data cruncher/forum socialite Alex is on the road but still in touch. In his own words:
“On the strategy pages, the drawdown indeed is on a daily timeframe, you can see when selecting a one month period where daily datapoints are charted. If a longer timeframe is selected, then the chart changes to monthly datapoints compressing the data, however the drawdown is still the maximum daily drawdown during the month.
On the portfolio builder only the monthly drawdown is shown, I’m just in process to update to daily data points.
MattParticipant03/08/2015 at 9:15 pmPost count: 10
That will be great to have the daily max drawdown also on the portfolio page, please let us know when it is live. But there may be an error in how max drawdown is calculated, as I found max drawdown on the portfolio page can be off quite a bit when compared with the individual strategy, even taking into account monthly vs. daily. For example, if I choose Global Market Rotation Strategy Enhanced (GMSRe) and make that 100% on the portfolio builder, it should match or at least be close to the individual strategy data page for GMSRe. Yes the portfolio builder in this case shows a maximum monthly drawdown of 22.56% on 2/1/09 yet the individual strategy page for GMSRe shows a max drawdown of 31.12% on 3/2/2009. That is quite different. Do you see this also or am I doing something wrong?
VangelisModerator03/09/2015 at 1:42 pmPost count: 165
I am re-posting for Alex, as he ‘s on the road.
“Hi Matthew, excellent observation, thanks for diving deep into this. I’m a bit handicapped during my travel, but here a quick explanation and an excel chart so you can follow up.
The difference between daily and monthly drawdown data indeed is not very intuitive, this is why I was hesitant to put a monthly figure in the statistics, and working on getting everything to a daily period.
As you can see in the chart below, on a daily level the last max equity was intra-month on 12/18/2008 (171.92), which then compares with the max through on 3/2/2009 (118.7) to a maximum drawdown of 31%.
On a monthly level the maximum was 1/2/2009 with 154.5 (using first trading day of month here), which compared with the max through on 3/2/2009 of 118.7 to give you a drawdown of 23.2% for the preceding month of Feb 2009.
So the massive -10% intra-month drop from 12/18/2008 (171.92) to 1/2/2009 (154.5) explains the difference.
So is daily or monthly drawdown the better measure? For our monthly rotation strategies the monthly drawdown corresponds to the maximum realized drawdown, e.g. what you would have experienced in reality. However, the daily drawdown is a better measure for the ‘fear factor’, e.g. the emotional discipline needed to stick to the strategy during corrections.
Hope this explains a bit, attach chart and excel sheet with calculations.
All the best, Alex ”
MattParticipant03/09/2015 at 2:26 pmPost count: 10
Got it, thanks for the explanation. As you mention having daily max drawdown is important as it helps with the fear factor and makes it easier to stick with a strategy and not bail mid month.
I do not believe, however, that showing only monthly drawdowns even for a monthly rotational strategy is statistically relevant for back testing, since you are in essence sampling the drawdown only 12 times per year.
I look forward to when the portfolio tool shows max daily drawdown, which it sounds like you are working on. In the meantime that’s great we can see max daily drawdown on the individual strategies. Thanks again.
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