Posted By: Roy   Date: Sun Jan 6, 2008

Title: profits and losses

Message:
  I may not be right about this and I hope I'm not, but at the close of 8/24/07 the trading model was showing a profit of 39.5%. At the close of 1/4/08 it was showing a profit of 7.33%. That's a drop of 32.18%. It seems to me that anyone beginning trading 8/27 with an even account without the advantage of a previous profit and staying fully invested would now have a drawdown of 32.18%.
  Roy

Response:

Roy,

Now I see what you did. Unfortunately, you are comparing two different time periods. The trading model performance results cover the last 159 trading days. It would be 165, except for the ANO delay and one start day. For the dates you cite, the overlap is small. The calculation of the period return starts anew on the first day of current period which moves ahead by one day each trading day.

You can see what would happen if on the first day of the current period the model had say 50 percent return. The return over the that entire period might be say 25 percent. The next day we calculate the period return to be say 10 percent. This occurred because the big 50 percent day was no longer used in the calculation. So the period return dropped in a single day by 15 percent when the real return could have actually increased.

Hope this helps,

Rich