How to calculate the Max Drawdown?
Graphic example of Max Drawdown : An individual who would have invested 10,000 euros in shares in this company saw his investment reach 13,700 euros at the highest point before being worth 7,800 euros at the lowest point. the Max Drawdown calculation is: (13 7) / 13,700 = 43.06%.
How to calculate the Drawdown ? Drawdown and Maximum Drawdown designates a single and unique tool, which we calculated thus : Drawdown = (Vmax – Vmin) / Vmax with: Vmax: the maximum value reached over a determined period.
Profit Factor = Sum of Gains / Sum of Losses Suppose a Trader has made two winning trades of € and one losing trade of €60 on his trading day.
Definition of Max Drawdown. Graphic example of the Max Drawdown: The price of company ABC moves towards a performance of +37% then suddenly drops to -22% before starting to rise again.
Max drawdown: the limit not to be exceeded. In general, it is considered that a historical maximum loss of 20% to 30% can lead to the closure of an alternative fund (or dismissal of a trader).
If you have €1,000 of capital you can calculate it in % (21/1000)*100=2.1. Your Max Drawdown for the day is -2.1% of your capital.
Therefore, the strategy where the risk is higher is debatable and it depends on the expected waiting period. The max drawdown is measured as follows: Max drawdown = (the peak value before the biggest drop – the value of the biggest drop) / (the peak value before the biggest drop).