Trading Systems Research & Development

Start Trade Drawdown

One of the most important statistics a trader should know is the systems average start trade drawdown. Start trade drawdown is the amount you dipped under your original investment amount. This is different than the peak drawdown which includes giving back profits. Start Trade Drawdown can be greatly influenced by the day you started trading. If you started right in front of a series of winning trades you might have never gone under your starting investment. However, if you started with a series of losing trades you might have gone significantly below.

In this example we look at the Checkmate 18 market portfolio with a 25k account risking 2% of equity per trade or a minimum of one contract if risk was less than $1500 per trade. We analyzed 549 starting dates over the last 10+ years to see what the average start trade drawdown has been. In addition we looked at each one of those starting dates to see on average where the account was 12 months later. Most system vendors only show you a single starting date and this can be misleading. It would be possible to just "cherry pick" the best one. In this study we tested EVERY starting date.

As you will see, the average first year profit on 25k was $15,422 (62%) and the average start trade drawdown was $2,705 (9.24%). Also, over 97% of the first 12 month periods were profitable!

For the complete spreadsheet results you can download it here.

Starting Equity $25,000
Average First Year profit after 549 starting dates: 62% ($15,422)
Average Start Trade Drawdown after 549 starting dates: -9.24% (-$2,705)

$25,000 Starting equity with worst start trade drawdown and best  first year performance.

Starting Equity $25,000
Best First Year profit after 549 starting dates: 136% ($33,962)
Worst Start Trade Drawdown after 549 starting dates: -43% (-$10,766)*

*(some people may wonder this drawdown is larger than on the 100k example, the reason is that with 100k we only risk 2% of equity per trade, with smaller accounts we were willing to risk up to $1,500 which is up to 6% risk per trade. You need to take more risk with smaller accounts)

Risk Disclosures

COMMODITY TRADING involves high risks and you can lose a significant amount of money. Commodity trading is not suitable for many investors. Any performance results listed in all marketing materials represents simulated computer results over past historical data, and not the results of an actual account. All opinions expressed anywhere on this website are only opinions of the author. The information contained here was gathered from sources deemed reliable, however, no claim is made as to its accuracy or content. Different testing platforms can produce slightly different results. Our systems are only recommended for well capitalized and experienced futures traders.

CFTC REQUIRED RISK DISCLOSURE

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.