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Question on calculated max drawdown

The backtest below is a simple strategy where you buy SPY when the 15 day MA is above the 63 day MA and sell when 15 day MA crosses below 63 day MA. My question: The max drawdown from this strategy is calculated to be 15.8%. How is that number calculated? I hold SPY, which should track the benchmark fairly well, for several months in some cases. I would expect the maximum drawdown to be near 100%. Is the "max" drawdown actually the average drawdown?

4 responses

Here is the backtest

Clone Algorithm
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Backtest from to with initial capital
Total Returns
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Alpha
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Beta
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Sharpe
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Sortino
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Max Drawdown
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Benchmark Returns
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Volatility
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Returns 1 Month 3 Month 6 Month 12 Month
Alpha 1 Month 3 Month 6 Month 12 Month
Beta 1 Month 3 Month 6 Month 12 Month
Sharpe 1 Month 3 Month 6 Month 12 Month
Sortino 1 Month 3 Month 6 Month 12 Month
Volatility 1 Month 3 Month 6 Month 12 Month
Max Drawdown 1 Month 3 Month 6 Month 12 Month
# Backtest ID: 51f7fb48ba5f9206de41c6ef
This backtest was created using an older version of the backtester. Please re-run this backtest to see results using the latest backtester. Learn more about the recent changes.
There was a runtime error.

100% drawdown would be the same as saying "lost all the money". I don't see anywhere on the blue line where it goes to -100%.

But I do see some places where it could have lost up to 16% of the portfolio value. E.g. from the peak at the start of 2010 to the trough in September that year.

Definition of 'Drawdown'
The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.
http://www.investopedia.com/terms/d/drawdown.asp

Thanks Dennis - I must be off my game today. For some reason I confused drawdown with downside capture ratio. Whew.... second foolish mistake I made today. My apologies.

No worries :)